Callum Williams: Economics, AI, and Technological Progress — #82
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You know, you look at things like, I mean, there's crazy things, like how quickly it takes to put up a building. You know, that takes ages now. You know, San Francisco put up the Golden Gate Bridge in three years. The Empire State Building went up in a year. Like, this will never happen now. So I think there's loads of examples. I don't think that, like, AI, which obviously is, I'm not trying to say AI isn't amazing, because obviously it's completely amazing. I use it all the time. But, like, the notion that AI by itself undoes all of that stagnation strikes me as just completely wrong. ♪

Welcome to Manifold. Today, my guest is Callum Williams, a senior writer for The Economist. Callum was educated at Cambridge, Harvard, and Oxford. He is the author of a book called The Classical School, The Birth of Economics in 20 Enlightened Lives. Callum, welcome to the podcast. Thanks for having me, Steve. It's really, really amazing to be here.

Yeah, I'm really looking forward to this conversation. I find you to be a reasonable and intelligent economist. And most economists are intelligent, but not all of them are reasonable. In terms of anything anyone's ever said to me. Thank you very much. So we have a list of topics to discuss.

And for the listeners who follow me on Twitter, this conversation actually started because I posted some Fed data on U.S. wealth inequality, and that started a conversation. And then I said to Callum, hey, let's talk about it on the podcast. But that is just one of many topics that we're going to discuss in our conversation. Because of what's happening with our God Emperor Donald Trump,

And Vladimir Putin. I thought we'd start with something which is related to current events, which is the current rapprochement between the United States and Russia. And now the.

Callum's employer has a certain editorial line on this, and I'm sure he doesn't disagree with them, but we're not going to put him on the spot. I'll say all the things that are pro-Donald, and Callum doesn't have to do that. But why don't you start now, Callum, with just maybe talk about how surprised or whether you are surprised with the turn of events in the last week or so.

In the past week or so. And no, I mean, no, not really. I mean, it was all telegraphed, really. And, you know, if you look back at the coverage of the Munich Security Conference last year, it was precisely the fear of people who were at the conference back then, right? I mean, it was...

that Trump was, you know, doing well in the polls. He had often sounded kind of skeptical of NATO. He had often sounded skeptical of supporting Ukraine against Russia. And so really, you know, Trump has done what he said he would do. So in that sense, it's not a surprise, even though, you know, people still find it shocking in some regard, I suppose. I think in MAGA world, the surprise is not how Trump felt about all this or directionally where he would go with it.

There's always a chance, as in the first term, that the crowd around him, he would like accidentally appoint a bunch of neocons or deep state people around him and they would restrain him from actually doing what he promised.

That doesn't seem to be the case. The turn that Marco Rubio made from, you know, prior to his appointment, I was thinking, or even prior to a speech that he gave recently, I always thought of him as like a kind of neocon guy. But then he gave this speech as his first speech, I think, as Secretary of State about multipolarity, which really shocked me. And so it seems like this time Trump may have

put in place a bunch of people that are aligned with him and that are, you know, willing to, like, sprint in the same direction as him in this administration? I mean, yes, you know, there is reporting that suggests that what Rubio is saying to people behind closed doors is different to what he's saying out loud in public. I mean, I don't know. This is not something that I'm an expert on, but I mean, certainly the kind of, you know,

All of the horses are running in the same direction at the moment. But, you know, then again, we are only in like month two or month one, really, still of the administration. He had it. Yeah, he won convincingly in the recent election. So he's got a huge amount of political power. I mean, I suppose for me, if I were to look for the positives here, the glimmer of hope, I guess, is that this is kind of how.

Trump negotiates typically where he kind of butters up people that he wants to do a deal with and then some kind of compromises reach. Now, who knows whether that's what is actually going to happen this time around. Maybe it's the case that he really genuinely will kind of like give a lot of Ukraine to Putin with those strings attached.

But we don't know, obviously. And this is basically how he's always been shaped. It happened with, obviously it happened with Canada and Mexico a couple of weeks ago, but it happened with the Abraham Accords, it happened with North Korea, it happened with the EU over a bunch of washing machines and all that kind of stuff. This is the modus operandi of Trump. So that's the only things making me think that it might turn out differently to how people expect. Now, my...

People who listen to the podcast or follow me on Twitter know that my views on the Ukraine conflict are probably most similar to those of two former guests on the show, John Mearsheimer and Jeffrey Sachs. And, you know, that would be the view which in Europe people would say, you are repeating Russian disinformation, which is that this thing was a long time coming. Neocons really wanted to create a proxy war against Russia. Yeah.

We could have stepped off of that trajectory that led to outright conflict. There were many opportunities to step off, and we didn't take them because we wanted it. At least a certain faction that was in power in the United States wanted it.

And now a different faction is in power that doesn't want it, wants really to be friends with Russia because they don't want the Russian-Chinese alliance to be something that they have to deal with. And so to me, it was an on-off thing that took place over about a decade. And we're now in the kind of off phase, sort of like risk on, risk off. And I don't know if you've...

You're allowed to comment on this because I think your employer has a very different view from mine on this. Yeah, yeah, yeah. No, I mean, definitely the economist does. We do. I mean, the economist does not subscribe to the kind of Mearsheimer-Sachs, also Cummings to a degree, Elmer Cummings argument on Ukraine. I mean, I'm not kind of involved with it in the reporting in a very detailed way. I mean, I think...

I'm closer to the economist side than the Mearsheimer side. I mean, I think the kind of cork-up versus conspiracy point, I think, is valid. I mean, the notion that there was some kind of engineered proxy war, to me, sort of falls down in a kind of prima facie sense that it's just too difficult to do. I mean, what is clear, I think, is that... And this is where...

the economist has departed a long way from the kind of, as it were, Western elite consensus, is that the expectation that, um,

EU and American sanctions were going to be able to quickly destroy the Russian economy and sort of bring it to heel has been proven completely wrong. And it was pretty obvious that was going to be completely wrong right from the start. That is something that kind of weirdly, we haven't kind of oddly had much engagement with our, I think, correct reporting, but the Russian economy has proven very resilient. Like, you know, we haven't had people reaching out to us who got it completely wrong, who said,

You guys were right and we were wrong. There's been none of that kind of introspection, I think, from other economists. So in that sense, we kind of have departed quite a long way from the sort of mainstream consensus on the conflict. Good. Yeah. So that hence my term reasonable when I said you were intelligent. So, yeah, I would think someone who makes a strong prediction is

The way it's supposed to work in science is when you make the strong prediction and it's wrong, you come back to the other side and you say, yes, well, I was wrong about this. And let's all together update our, you know, our priors together. In the case of how well the sanctions are going to work, the thing that popped into my head being,

as you know, very familiar with like what's going on in the Chinese economy is I just sort of thought like, let me just flip through Ali Express and Taobao, which are like two places where you can literally buy like anything in the world. And now like Americans know it because Timu is very similar to that. And I just thought like,

hmm, is there anything on here that they're going to be able to order in Moscow that they're not going to be able to order, you know, from AliExpress in Moscow? And then I thought like, nah, I think they'll be fine, right? They may have to switch over to BYDs and Huawei phones or something, but I don't think it's going to cripple the economy. And I think that largely turned out to be correct. Yeah.

Absolutely. I mean, the way that I'm thinking about it is that it's, and the data I think supports this, and the anecdotes support this quite clearly, is that it's basically still possible to get anything in Russia that you want. The question is how much you're willing to pay. And if you want to have a Prada handbag or you want to have a bottle of nice Burgundy wine,

you need to pay kind of 20% more than you used to, which is sizable. And there was sizable inflation in the Russian economy, particularly in early 2022 when the invasion first happened. The ruble massively depreciated and it just became much, much more difficult to get hold of Western goods. But what you've seen basically since then is, yes, you've had that sort of substitution away from iPhones towards Huawei phones or whatever, totally.

the substitution away from other kinds of Western-made goods towards Chinese-made goods or Indian-made goods or whatever. But then crucially, and this is where the, you know, this is probably where I do think the EU has really kind of fluffed its lines,

What's also happened is that this enormous parallel trading system has begun, whereby exporters in Italy and Germany and to a lesser extent the UK, but big European countries, will export German-made, Italian-made goods to, say, places like Armenia, Kyrgyzstan, Azerbaijan, and then it will be rerouted to Russia. So you see this absolutely enormous surge in imports, say, for example, from Germany to Kyrgyzstan.

in the in or georgia in the opening days of of the war and it hasn't really come back down now obviously this rerouting adds costs because you know you need to you need to pay the middleman you need to pay for the transport blah blah blah but like it's not that it's not it's not that much and you know with time these supply chains become more and more efficient so the kind of the effect has a sort of half-life that decays after a while so so in that sense like purely if you're thinking about imports

Yeah, you're totally right. Your supposition that you could go on to Aliexpress and do it was essentially correct, I think. Yeah, you know, on this evading sanctions kind of thing, I guess one variable, which I didn't know how it was going to turn out, was the oil thing. But I didn't really think we were going to be able to stop, you know, India and China from buying oil from Russia. You know...

As far as sanctions go, we have this interesting phenomenon that exports from, say, Vietnam or Mexico to the United States went way up. And there's a lot of evidence that that stuff is just stuff that's actually made in China, but then it's assembled in Vietnam and then exported here to evade the sanctions. And even more drastic sanctions, like stopping NVIDIA from selling its top GPUs into China, those seem to have been largely evaded too. If you look at the NVIDIA...

earnings, you know, over half of their revenues come from sales to the greater sinosphere, which includes Singapore and Taiwan. And I think a large number of those GPUs ended up in China. They didn't end up, some of them ended up in data centers in those countries, but probably at least half or more ended up just being transhipped into China. And my sources tell me there's literally no shortage of H100s or even the most advanced GPUs in China. There's actually a glut right now.

Right. And you hear all these crazy anecdotes about people getting on commercial planes, right? With suitcases that happen inside and all this kind of nuts. Yeah. I mean, if you can, for the average guy, if I can open a fake data center using my apartment in Taipei as the address, and then I order a bunch of, and NVIDIA is very happy to sell me a $30,000 H100 or something. And then I literally get on the plane with it in my suitcase and Taiwanese authorities don't care.

And then I make 5000 bucks, you know, just on the flight and I have a nice vacation. I think a lot of people did stuff like that. Totally. And, you know, I think I think the sort of intellectual mistake that a lot of both the Western policymakers who imposed sanctions on Russia and to a degree tariffs on China and sanctions on China. But if we're talking about Russia, we can leave it at that. The international mistake they made was

I think was to believe that we were still in a 90s or even 80s world where the US economy was kind of coterminous with the global economy and therefore that what the US decided if the US wanted to throw its theta away it could get what it wanted and I just think you know just purely by dint of GDP becoming you know sort of more equally distributed between the kind of global south and the global north that has changed.

And it was kind of, I guess, with that respect, it was odd that, I mean, maybe you'll say it wasn't odd because these people don't know what they're talking about. But in most ways, it was odd that people didn't consider that at the time. You know, the idea of Russia exporting more oil to India. So what, like 25% of Russian oil goes to India now? Something like that. Yeah.

is kind of so simplistic that a child would have come up with it. But it's almost like you're so blinded to the narratives that are in your head that you're unable to imagine that world existing. Yeah, I think if someone...

Like, let's just imagine some, you know, neocon strategist in, you know, in the White House or something. And on the National Security Council, you know, like plotting like, oh, yes, if we can get if we can just get them to start a war, then we'll sanction them and the Putin regime will fall. I mean, I think people really thought this at the time. If you and I were confronting that person saying, like, let's sit down together and just do a couple Google searches.

And we'll just test whether your view of the world is right. And you could have just Googled like, okay, where does India get its oil? And could they, is it realistic that we're going to stop them from getting it from Russia? And then, you know, so I think their worldview could have easily been collapsed. But they were so insular, like the bubble that they were living in was so insular that no one, I think, effectively challenged them and got them to really, you know, try to sanity check India.

their worldview. And I think the worldview could almost just be compressed into saying, as you said, they just thought it was 1990. So in 1990, the post-Soviet collapse, Russian military was shit. It was not going to be able to do anything. The whole society was dysfunctional and the entire global economy was the U.S. economy, right? And if you're just stuck in that era, then you're going to think, yeah, great. As soon as we put sanctions on them, Putin will just collapse. Yeah.

I think there was, I think, so I do agree with that a lot. The other thing that I think was going on was something subtly different, but kind of added to the problem, which was that I think rightly there was enormous outrage globally when Russia launched its invasion of Ukraine. And there was obviously enormous sympathy for Ukraine and enormous sympathy for the Ukrainian people. And I think as a result, it's very hard as an analyst at that point

to, you basically really want Russia to get punished for this, right? Yes, yes. You really, really want them to be punished. And so your tendency, I think, as a result is to look, you have a lot of confirmation bias as a result, where any kind of data point that comes out of Russia that looks bad, you're like, right, that's it. This shows the economy that's bad. Now, one thing I should say is that I say this with the benefit of hindsight about what happened with Brexit, because in 2016, when the UK voted for Brexit,

I, like most people at The Economist, was super anti-Brexit, thought it was a really bad idea. And so when the UK voted for Brexit, I know when I sort of look deep into my psyche, there was a sort of phenomenon where I was like, I kind of want the UK economy to go down the toilet as a kind of punishment for voting for Brexit.

And I think a lot of people did that. And I think as a result, you were looking for evidence that the UK economy was about to collapse. And in practice, again, that didn't happen at all. And I kind of internalized that lesson being like, okay, when something happens that I don't like, I cannot allow my dislike of that event to influence how I judge the economic data, whatever. It's very hard to do in practice, of course. But as I say, I think that was a big thing that happened in 2022. And what was the crazy thing was, and again, I won't reveal names, but

So there was this period, an interesting period from about April 2022 onwards, where it became increasingly clear that the economy was the Russian economy was not was not promising. In fact, was going to see a sort of mild recession. And then by the end of 2024, it was very clear. But even then, a lot of those sort of more conventional forecasts on the Russian economy was still predicting a big recession in 2020, 2023. It was like, oh, no, no, no, it's just been delayed.

It's going to happen in 2023. And then it didn't happen in 2023. And then again, they said, no, no, no, this time, I promise it really will happen in 2024. And now we're seeing it again in 2025, where if you look at what's been published over the past few days, past few weeks, there's so many articles being like, is this the year when...

the Russian economy finally collapses. So I think people still have not been able to separate their, their dislike for hatred for the Russian regime, which I think is entirely justified from a sort of sober analysis and what's really going on. Yeah, I totally agree with you. And I would say exactly what you described is mirrored in the military analysis. Like,

On the NATO, especially sort of UK military side, when they estimate Russian casualties or losses, I think they're heavily overestimating what happened, the amount of damage that the Russians took in all this. And a similar thing, because they were looking for it. And so there's just a little bias to take the higher end of the estimate. Whereas when the dust, the dust will never really fully settle. But I think

10 years from now, when some very dispassionate historians are going over the evidence, I think everything will be adjusted downward on the Russian side relative to what a lot of people in the West believe. This idea of like,

So not being able to do dispassion analysis just freaks me out because as a physicist, like, you know, usually people don't get very emotional if I talk about like what the quark is doing inside the proton. Like you can you don't get emotional. It's like, oh, what does the data say? And OK, yeah, maybe the wave function is peaked here or something. Yeah.

Um, but then as soon as you go in to get into history or social science or these other things, it's like, wow, people just cannot decouple. And if you're caught saying something like, hey, the Russian economy seems to be doing pretty well, immediately people start accusing you of being a Putin sympathizer or agent or something. It's just crazy.

Yeah, I mean, we never got accused of being a Putin sympathizer, I think, because we have had such a strong anti-Putin life for many, not just when the invasion took place, but for many, many years before. I think we were accused of...

I think two things. One was being duped by statistics that the Russian authorities are putting out. So that was that was a sort of that was like the last readout of the bears. Right. They would say, well, it may look as though unemployment is 2 percent. It may look as though inflation has come down to 2 percent. It may look as though consumer confidence is at an all time high, which it is, by the way. It may look as though it has not been much of a recession. It may look as though the economy grew by four and a half percent last year, which it did.

But you can't possibly trust the Russian data. Now, we've done a lot of work and spoken to a lot of people and analyzed the data ourselves and got input from others. We have absolutely no doubt whatsoever that the Russian data is basically okay. It doesn't materially mislead. It's also very consistent with all of the private sector data being produced.

So, yeah, no, I mean, it's... So that was our main accusation, that we had been duped by the data. But then also, as I say, it was this, like... There's a kind of temporal critique as well, which is, like, you may be correct now, but you're missing the longer-term, bigger picture, which is that the Russian economy is screwed. And there's something unsatisfying to me intellectually about resorting to a speculative, forward-looking analysis, right?

as your only way of kind of conveying a point because like in the here and now what matters is like is the Russian economy screwed up or is it not and obviously it's got massive imbalances running huge deficits inflation's high it's like I'm not trying to say the Russian economy is like the best performing economy in the world because it definitely isn't but like the notion that it was going to force you put Putin's hand is

was just laughable, basically. Yes. So yeah, that's where we found ourselves. Yeah. I think the last holdout of the bears is going to be something like, well, you know, if Trump hadn't won this election and Kamala Harris had won it, you know, and we had kept a strong, you know, set of sanctions in place, then in the far asymptotic future, the Russian economy will definitely, you know, collapse. Maybe not collapse, but they're screwed.

Right. Yeah. So we were actually right. It's just unfortunate this crazy Donald Trump guy got into office. It's possible. I mean, you know, there's a there's a equally now I've now I've got to stay in this position of being my quote unquote, whether to be bullish on the Russian economy. Yeah. There's a risk, of course, that you overcorrect emotionally and you actually don't see the you don't see the bad days coming out. I mean, one thing that did make me question when there's two things that made me question.

how the economy is going to do in the next year or so. One is that there were quite materially tighter sanctions that were implemented in autumn of last year on like Gazprom Bank, which basically is responsible for processing a lot of payments of exports of oil and gas or whatever.

And that caused the ruble to massively depreciate. So people were, you know, investors were scared by this. And then the second one was that there were new sanctions implemented on Russian oil tankers, which were much more serious. Now, there is a world in which that does start to bite. And the data would, the latest data would suggest that like Russian oil flows are being

materially i'll say in a that's a vague word but materially disrupted by the tanker sanctions so like it could turn it could turn but like the latest data where that we're saying i'm seeing points to again gdp growth in the region of three to four percent real times which is not bad like germany's at zero uk zero france is at like one like it's not it's not actually that bad right yeah right

So before we leave the Russia-Ukraine business, do you want to make any predictions or things that you suggest the viewers look out for? About the conflicts or about the economy? Either one. Anything. Either one.

Well, I think on the conflict, I suspect some kind of arrangement will be reached. I mean, my concern, I suppose, is that Putin's time horizon is just much longer than Trump's. And so I think, notwithstanding the critique of always looking too distantly, distantly, distantly into the future, I think it will be worth sort of wargaming in your head how sustainable

any kind of deal that's reached between Putin and Trump will be, either to the benefit or to the detriment of Ukraine. I don't know. But I think, you know, I suspect not this way to the economist, I'm sure, but the tone of a lot of the news analysis, if and when a deal is reached, will be, this is the final act of the play. And, you know, that's just not going to be the case. If it turns out that

we sort of normalize relations with Russia. We kind of cool off the Ukraine conflict and the Trump administration really pushes for a Sino-Russian split. Okay. So let's suppose that, I mean, that's one possible future that could happen here. Can you model in your own head, because you're much more familiar with their psychology than I am, how the UK and European elites will react to that new world?

So so so suddenly suddenly it's like massive charm offensive with Russia, because any small thing that is a difference of opinion between Trump and them, they're going to paper over because they want Putin to basically start doing things which are not threatening to China. But we, you know, are weak in that alliance significantly. But in that world, we're just Trump just doesn't want to hear any bad stuff about Russia. Right. He's he's like, oh, forget that. Right. Yeah. Yeah.

Well, I mean, I suppose to slightly change the terms of the question, I mean, my sense was that the economics of the Sino-Russian alliance were always massively overstated. Yeah. I mean, not least because China is just so much bigger an economy than Russia is. But like, even if you look at networks of investment, networks of trade, like they were still like really tiny. Yes. Even after this supposed alliance. So like.

It was one of those things that the optics massively dominated the data. So in that sense, I would say probably nothing will really change. I mean, again, and even like there was this period in the UK when I was living there in the 2000s where everyone went mad for Russia. Everyone loved Russia, like Roman Abramovich, Chelsea, all these Russian people moved to like Kensington and Chelsea and Knightsbridge and stuff. And it became a kind of cultural meme that like there were Russians everywhere in London.

But again, if you look back at the data and like, well, actually, how much did Russia truly invest in the UK? It was tiny. It was like, you know, the stock of investment in the UK economy was something along, it was like 0.5% of total foreign investment in the UK was from Russia. It was really, really small. So I guess if I were to, my kind of,

What I would urge people to do if that starts to emerge is to actually look at the economic data. Look at the bilateral data and see how that's changing, because it basically didn't really change after this supposed alliance between Xi and Putin. Yeah, great point. My view of this was not that the economic tie-up was the primary thing. I think for Chinese strategists, it was always that Russia was... If Russia maintained an antagonistic relationship with Europe and the United States...

that gave the Chinese a much better option in the event that things got hot. So in the event the Americans tried to block the Malacca Strait or a hot conflict started in the Pacific, having Russia on your side

uh, is just useful. Right. And if, if Russia is still at loggerheads with the U S they're not going to let China go down because if China goes down, then Russia's next. Right. So then like their nuclear arsenal becomes not like you control their nuclear arsenal, but if the Americans launch on you, the Russians are going to launch on the Americans. Right. You can be pretty confident that's going to happen. And, or if the rush, if, if, if a hot Naval, uh,

breaks out, the Russian ships are going to be supporting the Chinese ships, right? And submarines and so it was all like kind of tail risk kind of stuff. But all these military planners live in the tail risk world where things get...

hot. And so it wasn't really like, oh, we're doing X billion more trade now with Moscow. That's actually not the important part. But if we really needed the oil, we needed some fuel from the Russians because the U.S. is succeeding in cutting off what we buy from Iran.

Being able to rely on that a little bit in the crunch allowed them to plan differently. I think that's really more where this stuff lies. Totally. I suppose one thing, the only thing I would say to that, and here I'm venturing far from my expertise, but my kind of model of...

Russian-Chinese relations going back over history was that they were always in a very unstable equilibrium, right? I mean, the split in 1968 or whatever over nuclear weapons was like a massive event. And I think even now they've still got big disputes over some part of northern China, like is it Russian or is it Chinese or whatever. But then again, this is all

I think as an economist, I'm sort of slightly... I sort of end up believing that a lot of this stuff is quite word-selly. Like, it feels a bit kind of geopolitics, hand-wavy stuff. But no, totally, totally take your point about the terrorist stuff. Yep. Okay. Let's move on to the topic that actually got us together, which is U.S. inequality. Yeah. And for the listeners, I...

Tweeted retweeted a graph from the Fed, which looked at the amount of wealth held by different segments of the American population. So you rank the individual families, say, by their percentile of wealth.

And then you aggregate within that band. So you could say like, oh, all the people that are in the bottom 50% of families for wealth. So they're the 50% least wealthy families in the United States. You aggregate all their wealth. And that comes out to be like very close to zero, right? Because a lot of them have dads and et cetera, et cetera. But anyway, their aggregate wealth is very close to zero. And then as you look at...

more and more wealthy chunks. So like 90th percentile families or 99th percentile families, they start taking up more and more disproportionate chunks of the total wealth of the United States. And so that kind of graph makes it seem like America is kind of a really dystopian place because like, oh, half the country has like little to no wealth. And of course,

It's much more nuanced than that because, of course, a lot of the people in the bottom 50% are young people who haven't had a chance to accumulate any wealth. So it's sort of misleading in that way. But I got a lot of pushback on Twitter just because people didn't like – some people just don't like any –

favoritism toward equality or redistribution. So people just got angry at me for even pointing this out. Callum wasn't one of those people, I think, but Callum probably had a much better idea of the actual numbers you want, which is control for age, control for a bunch of other things, and then look at wealth inequality. And it's not as bad as that Fed graph showed. But Callum, maybe just tell us what, like, how would you explain if some Martian landed and they wanted to know, like, well,

How unequal is America? What would you tell this Martian? Well, I think you summarized it really well. And your tweet was factually completely correct. And you added bits to it as the conversation went on. So you didn't make any mistakes or anything. And it's very complicated. I mean, I think one extreme argument that one can pursue is to say that wealth is kind of a meaningless measure to begin with. So there is an argument that you shouldn't be interested in

in wealth to begin with. One reason for that is, as you alluded to, there will be many, many people... What do we really care about? We care about the capacity to consume. That's really what we care about. If they want to, what kind of living standards can they attain? Person A, what kind of living standards can a person achieve? Person B. That's what we care about. Now,

One issue with wealth is that there will be a lot of people who will be, you know, have taken out a large debt on an absolutely enormous house. Three million, five million dollars will be paying that back or they're paying into their pro-EPSY funds and they've got a huge liability there, you know. And so they will have deeply negative net wealth, but will be by any reasonable measure extremely well off. Right. So I suspect that most general partners will.

maybe not general partners, most partners in Silicon Valley, VC, private IPC funds probably have close to zero or highly negative net wealth. So that illustrates the conceptual difficulty of focusing on wealth in the first place. Then there's a question of measurement, or really a question, I guess, what do you include? And you allude to this in your tweets. So

When people think of wealth, they think of like the Donald Duck jumping into the pool of gold coins in his dungeon, which is a form of wealth. But of course, it encompasses lots of different things. It clearly encompasses housing. But it also, as you said, encompasses things like social security. And obviously what you've had over the past, I don't know,

a few decades, 50, 60 years, is a huge expansion of the welfare state, not just in Europe, but also in America. Now, I think by any reasonable standard, that should count as a form of wealth. It's a sort of pot of money that's sitting in some account or it's some kind of promise being made to you by the government

for flow of income to come in your direction. That is basically what wealth is, is a stock of money or a stock of value. So I think you therefore need to have a question about what counts as wealth? Do you count social security? Do you count company pensions? Or do you count the promise that the government has made to give you food stamps if your income falls below a certain level? I mean, that is a form of wealth also. And then there's the question of how you measure it. Now,

To begin with, there are only three or four countries where surveys on wealth even approach the level where it would be reasonable to like

estimate how much wealth a given person has. I think, from memory, those are the US, UK, Denmark, and France, I think. And basically elsewhere, the surveys just don't exist. You know, you can, in theory, sometimes look up people's tax returns, but that's difficult because people will often misestimate wealth and often don't report their tax returns either. So you've got all these kind of big problems,

And so as a result, my view, I suppose, is that it's sort of just a bit too complicated and you should really be interested in income or even ideally like expenditure inequality, like how much can people actually consume?

So what you've had in the US is a lot of work by Piketty and Sires and Zuckerman. Those are the head honchos of wealth inequality studies. And their work has been enormously influential, obviously, and has shown that over the past few decades, really since the 1970s, mid-1970s, early 80s, on wealth inequality as measured by, say, the top 1% share of all wealth has exploded, skyrocketed.

But I think they are now more recently, really over the past four or five years has been a, I think a quite convincing pushback on both the wealth stuff and on the income inequality stuff to say that, you know, hang on, once you actually think about the difference, the difference in the sort of balance sheets between rich households and poor households, things change. So I think the sort of easiest disagreement to, to understand is, is sort of as follows. So,

The way often that studies estimate wealth when they cannot observe wealth directly is to look at the income from assets and then multiply it out by an assumed interest rate. Right. So, you know, if you've if you've got ten thousand dollars, but you assume a 5 percent interest rate, then, you know, multiplying by 20, 20 thousand dollars, that 200 thousand dollars is the wealth of which you get a 5 percent interest rates and get ten thousand dollars a year.

So it's a calculation, an estimation of wealth rather than directly observing the wealth that someone has to hand. So the assumption, well it could be stocks, it could be air, it could be bonds, it could be just bank accounts. The assumption that has typically been made in the Piketty work is to assume that the rate of return, a

across households and the income distribution is the same. So it's 5% of 5% of 5% of 5%. In reality, it doesn't quite work that way because often people at the bottom have poor financial literacy or put all of their income into like a bank account that might pay almost no interest, right? Or maybe it pays 1% interest or maybe they buy a certificate of deposit and it pays 2% interest.

Whereas the very rich are disproportionately likely to put all their money into like equities or corporate bonds or something where the rate of return is typically higher. So if the rate of return is typically higher for rich people, then once you back it out, the assumed amount of wealth that they're deriving that income from is much lower. So you get a lot of these kind of adjustments that are made. And once you do all that, what you typically find is that

There has been a kind of U-shape of wealth inequality in the US and lots of other countries where it was super, super high in the kind of great Gatsby days. And then it fell after World War Two and after governments, you know, they put in capital controls and wealth taxes and all that kind of stuff. And then since the 1980s, it has been coming up a bit, but to a much, much, much lower degree than what the kind of Piketty research would suggest.

So just to recap that for the audience. So, so, you know, I remember probably it's been like more than 10 or 15 years. When did Piketty's book come out? It was a while ago, right? And yeah, I mean, I mean the really famous one was like 2012, 2013. Yeah. So almost 15 years, 10, 15 years. So yeah, that had a huge impact. And I remember looking at it and being very, you know, struck by the figures in the book. Uh, but I just wasn't sure how much I should trust, uh, his inferences. Um,

And so now you're saying that there's been a fair amount of empirically grounded pushback against it. Yes, I would say there's more discussion over the income inequality figures than the wealth inequality figures. My sense is that academics generally believe that the income inequality stuff is more fruitful, basically because there are fewer sort of imputations you need to make, because in theory, at least...

at least in the US, somebody will report all of their income on their tax return. And so you can look at what someone's income actually is. Whereas for their wealth, they don't report all of their wealth on their tax return. So if you're interested in looking at tax returns, which you kind of need to do to understand the finances of the very wealthy, then you're kind of pushed in the direction of analyzing wealth inequality. Right.

Yeah, you know, I have interest in both that. So I'm interested in the ultra high net worth world, high net worth world. But when I put the tweet out, what I was actually interested in, I was just looking for a figure that captured the level of precarity of

Of the really poor. So you read these, you hear these factoids like, you know, X percent of Americans are one paycheck away from being out in the street and homeless. Right. And I was actually just trying to get at that. Like, like, is it if it's one percent of the population that's in that situation and it's actually because they have schizophrenia or something, that's a very different situation from like.

single mom who is working really hard, but if she loses her job and things just a couple bad breaks and she's living in a car with her kids, I don't want to live in that country. I want to have a country where that second scenario isn't happening so much. So my posting of the Fed numbers was a very poor way of getting at that question for

for various reasons. But after some investigation where we, somebody finally found data that where it was normalized by age and all this other stuff, um, still does seem like 10, 15, 20% of Americans. I don't know where the number is. Maybe it's closer to 10 than 20, but some kind of uncomfortably high fraction of the population is living a kind of precarious existence. And so that, that's, that's kind of what I was getting at. And then I, for the people that I interacted with on Twitter, I was like, look,

Let's just figure out where it is. And you tell me if you're comfortable with this. Right. So,

You could say I'm totally comfortable with this because, you know, after all, without that, we wouldn't have, you know, breakthroughs in AI or whatever shit you like, right? Like, oh, we couldn't have the dynamic good stuff if we weren't like, if we didn't have all this precarity at the bottom, which I don't necessarily believe, but people could make that argument, right? Yeah, totally. Yeah. So do you have any thoughts? What is the best way? It's a very interesting question. I mean, I think the question is,

So I guess what I would say is that using wealth inequality or wealth data to get at that answer is tricky. And the reason why that is, is because wealth accumulation strategies are heavily influenced by the welfare state. So to give you an example, Sweden has extremely high wealth inequality rates.

Now, Sweden is, in the eyes of many people, a kind of socialist welfare state paradise. So the question, why is that? And the answer is really because if you're at the bottom, there is not that much of an economic incentive to accumulate wealth because you know that if you face financial difficulty, the state will step in. So there's no need to insure yourself personally because that's the purpose of social insurance.

Now, what you've seen in the US as the welfare state has massively expanded over the 80s, 90s and 2000s is that the household saving rate has come quite markedly down. Now, people often point at that data set or data series of a falling household savings rate and say Americans are becoming like spendthrift or frivolous or whatever. In fact, I think a large chunk of that reflects the fact that there's just much less need to insure yourself privately now than you can insure yourself publicly.

So that would be the first thing. So I think we need to look at another data set. So the other one... Sorry, you go, you go. Can I just drill down on that? So are you saying that these people who are in danger of being kicked out of their rental because they can't make the rent, they somehow know that they will be saved at the last minute by government? Or...

Because it, I mean, maybe that scenario that I have in mind is not, maybe it's only because like Hollywood filmmakers like to make movies about this happening to people. Yeah. Almost never happens. Is that, is that the answer or, or, um,

Does government actually save these people from becoming homeless? Because I do see a lot of homeless people in the U.S. Well, yeah, absolutely. And we can talk about why that may be. I think it's wrong to ascribe conscious motivation to economic decisions always because people make decisions about pricing and about saving strategies based on a lot of unconscious or subconscious things.

But no, I think that's what I mean. I think it is important to remember that the in the US, the the the welfare state has massively expanded. So it's like one in eight, one in eight either people or households in the US is now on food stamps.

Medicaid has massively, massively expanded in recent years. And, you know, it was only during the pandemic that the federal government was was was had increased the rates of unemployment benefits to $600 a week. Right. So it was it's been a pretty substantial, substantial change. And I think it's not unreasonable to expect that would affect economic economic behavior.

You know, I mean, there may also be evidence of more kind of spendthriftness than there was before as well. I mean, these things are obviously overdetermined. But I know I do think that that could explain it. But I think the broader point is that there are probably better ways of capturing what you're trying to what you're trying to look at.

I mean, obviously, I mean, the best way of doing it is actually to look at flows in and out of homelessness, which is difficult, but possible. I mean, one that people often look at, which has its own problems is like, and you alluded to this, like when the Fed, there was a Fed survey that asks people, I forget the exact amount, but it's something along the lines of if you had to produce $600 or $800 at a moment's notice, could you do it? Yes. And that, you know, the answers to that are all quite high.

But you know, there's questions about how the survey is designed and that kind of thing. And then the other question, which I really do have a problem with, is do you live paycheck to paycheck? Because some insane proportion of US households, including US households that earn like well over 100 grand a year, will say they live paycheck to paycheck. So there's a question of like, is it really a meaningful measure of economic precarity? I would say probably not. I mean,

For me, I think the thing that is one of the great successes of the US economy and indeed many other economies in the virtual world over the past really 10 years is that it has become very easy to find a job by historical standards. Right. And then the unemployment rate in the US is like 4 percent or whatever. Pretty low. The unemployment rate in most rich countries is like near or at an all time low.

And the emperor, like the share of people actually in work, is at an all-time high. And so if you're thinking about what are the channels through which people are completely unable to meet their bills, obviously probably the biggest way in which that happens is because they can't find work. And that has become less and less likely, not more and more likely over the past few decades.

On that 4% number, though, this is probably a really basic question that shows that I'm not an economist at all. But there's some other figure, which is like the fraction of working age people who are actually engaged in work. And isn't that like alarmingly low? Like, are there much, quote, discouraged workers that just aren't counted in that 4% or something like that?

Yeah, so this was much more of a problem in the sort of like aftermath of the financial crisis. It is true that labor force participation among both men and women in the US is like quite low by international standards. I mean, there's like a crazy stat, which was true the last time I checked it a few years ago, which was that like

the labor force participation of japanese women is higher than american women which you know in the western stereotype of like japanese women being like very homebound and kind of traditional that's completely blows that up but that that has again that has changed in recent years because the labor market's been so strong i suppose the only other wrinkle to this is that i would emphasize that the u.s is like very unique in this regard for having a a kind of

fairly low declining or declined labor force participation rate. You look at almost any other rich country, you don't have these problems, right? So it's a particular US phenomenon. And there's this question of why it is. Like some economists have argued it's video games, which obviously can't be correct because it's video games outside the US. It could be the opioid stuff and the painkiller stuff and then that seems more plausible. The China shock, as some people have said, it's that competition from imports from China has destroyed various

towns and cities in the U.S. Maybe, but obviously lots of countries have faced the same kind of shock and had this problem. So there is a bit of a puzzle there. But no, the U.S. is not the best economy on this regard, but things have been improving. Yeah. It's amazing how, obviously, you're a professional following these kinds of issues. I'm just an amateur. But even between us, we don't have a real feel for like, if I go to some Rust Belt town, little town in Michigan, and

and I meet some 27-year-old who should be working and he's vigorous and healthy. Turns out he's living in his mother's basement and playing video games all day. Is that real or is that just some story that the journalists find and they blow it up? We have no idea. Is it 1%? Is it 5% of 27-year-olds? I just don't have no clue. Yeah, it's a really interesting question. It's also that that's become much more of a thing in the UK as well in recent years, this idea that

I mean, you've had this, like, in the UK, I know this for sure, you've had this, like, amazing surge in people taking time off work, like, for a long time because of, like, mental health stuff. Yeah. A really massive kind of, like, boom in doctors giving people notes to say you are excused from work for three to six months or whatever. Now, I mean, I'm open to the idea that this is the product of some kind of, like,

you know, generalized like social, societal degradation linked to, I don't know what it might be, social media or technology or whatever. But no, I agree. We don't have a great insight into this. But, you know, I think it's weird because for the longest time in economic policy, getting people into work was like the number one goal. You know, it was the thing that kept politicians up at night quite recently, right? You know, there was a period in like the early 2010s when the US unemployment rates wouldn't come down, wouldn't come down.

And that has now kind of gone away as a topic. And, you know, if you look at what happened, you know, look at what Trump was tweeting about in when he was president last time, for like, say, 2017, 2018, 2019. He would always say jobs, jobs, jobs, right? Block capitals, jobs, jobs, jobs. He doesn't tweet that anymore because it's now seen as assumed

that it will be quite easy to find a job. So it's a really interesting change that's taking place. I still have this residual suspicion that it's just there are a lot of people that are not counted in that 4% thing. And we've just like, we just like push them off to the side. Like, well, we don't worry about them, but for everybody else, it's 4%. Great. Yes, yes, yes. That is more true for the US than it is for other people. Then again, on the flip side, the US has created loads of jobs that probably are measured badly

by the stats people because they're given to people who are not here legally. Right. So there was this very interesting question about how many jobs, how many workers are there actually in the US? We don't really know.

Yeah. Let me close this topic off by pointing out, I'm revealing a little bit of your personal information here, but I believe you live near the marina in San Francisco. That's true. Okay. Now, that's like one of the most expensive upscale places in the world. But also, because you live in San Francisco, you don't have to go very far before you could –

step in some human feces, see some needles on the ground, maybe witness a store being, you know, emptied out by a flash mob or something. So how do you feel about like this, getting back to this precarity question and is the U.S. a polarized society of big winners who live in the marina and people living in a dystopia or is it, or is that just overblown?

Well, obviously, in terms of one's lived experience in San Francisco, it definitely is not overblown. Because there are large chunks of the city that the kind of wealth generators of the city... I'm not one of the wealth generators, I'm a journalist, so I don't generate anything. But the wealth generators, they don't go there. They don't really go downtown, they don't go to the Tenderloin, even though it's very close.

The question of why does San Francisco have so many people living on the streets and taking drugs is obviously a very complex and difficult question. I have gone back and forth over what is the true cause of this. I was for a long time very convinced by the argument that it was all to do with housing, that San Francisco has extremely expensive housing, which is undoubtedly the case. And as a result, even if you are in a pretty well-paying job, it is very difficult to afford a house. And it's

The pathway from even a minor disruption to your income and not being able to make the rent strikes me as quite logical. However, I have more recently, after reading and living here for a few years, come to the view that housing plays a role, but perhaps more important is basically the role of drugs. You can see people who are mentally, physically in absolute, complete crisis,

These are people who are, some of them are San Francisco natives, whatever word you want to use, they're from San Francisco. But I think a lot of them are not. I think a lot of them are drawn, despite what a lot of the nonprofits will say, a lot of them are drawn to San Francisco because both the supply of drugs is plentiful and also there are lots of well-meaning but I think misguided nonprofits who will

who will support your decision to take drugs and to live on the streets. Now, um,

I don't think for those people, giving them a home is the solution. It's not the only solution. I mean, they did this during the pandemic where there were lots of hotels in the Tenderloin and downtown with Rohentie because there's no one from San Francisco. They did actually give people a home. The city government did actually turn over a lot of these hotels. It has not made any difference to the problem whatsoever. If anything, it's made it worse. A lot of these hotels were, to be honest, completely destroyed as well. So it's really not worked.

So, I mean, the question of what you do about it now we have this problem is even more for me. But I think I don't see what's happening downtown San Francisco as a product of American precarity, to be honest. If anything, it's the product of like there being a lot of resources, not too few. Good. Let's move on because although we have like two hours, there are so many interesting things for us to discuss. We could build a whole two hours with just any one of these. So another topic we want to discuss.

U.S. and European divergence in any number of metrics, GDP per capita, wealth, etc. One of the striking things for me, because by coincidence, my wife was a visiting professor in the Netherlands in the fall. So I was traveling a bit in Europe and I saw a lot of things there. You hear people talking about their net income, which means the income they take home after taxes.

And even in sort of rich European countries, let alone like Greece or Italy or something, I was shocked at how low the net, what was considered a healthy, you know, upper middle class net income per month was, you know, could be a couple thousand, 3000 euros or something like that would be considered pretty good, even for a professional class person.

And for Americans, it seems like, wow, these guys are really like I hate to say it this way, but you guys are poorer than the people in Mississippi. Right. And so that's how the debate often emerges. Enlighten us about this. What is really going on? What's going on? The divergence between the U.S. and Europe.

Yeah, such an interesting question. So I guess I would say two things by way of context. The one is that there are ways in which the US has clearly recently diverged from the EU. As you say, GDP per capita has won, GDP growth since the pandemic.

Asset prices have really gone bananas. I mean, I'm thinking of the stock market really has, you know, they've really gone bananas in the US. They haven't done that in Europe. You know, investors are basically treating European equities like bonds. They sort of pay out some dividends. They don't grow. And so that's happened. The second thing I would say is that the US has really since...

I don't know, the 20s or the 30s, been richer than Europe, right? And that's not just because of World War II, but it has been richer than Europe, richer than the UK for a long time. I mean, if you talk to people, I mean, I had a good conversation with someone at Stanford who had done, he was a Rhodes Scholar at Oxford in the 70s, and asking him what it was like to travel from the US to Oxford in 1973 or whatever. He was like, it was like a different planet. It was so much more than

than America. So that's existed for a long time. The question of has the US become substantially richer than Europe in the past few years, which is the kind of Twitter, kind of zeitgeisty narrative at the moment, is less clear, I think. What has really happened is that, I suppose it ultimately depends on what you're interested in, but the thing that I'm interested in is

what's the best measure of living standards? Again, it's getting back to this question of capacity to consume. What really matters is what is the bundle of goods and services you're able to afford? And the best measure of that, I believe, and I think I'm right to believe this, is something called actual individual consumption, which is something that the OECD and other stats people produce. And it basically says, what is the market value of what someone buys with their own cash

with their post-tax cash, plus an assumed market value for all of the public services they consume. So healthcare, if it's socialized, public education, public transport, the quality of the roads, all that kind of stuff. And it's measured actually pretty accurately and at pretty high frequency.

And what you see there is that over the past kind of like 10 to 15 years, Europe has actually kept up with America pretty well. And in many cases, it's actually improved relative to America. So to use, in fact, to use the example of the Netherlands, which is where your wife was visiting for a

the actual individual consumption per person in the Netherlands is higher than in the US. Now, I know that that might be sort of odd to swear with the conversations you were having over there, but the value of things like public education and healthcare is very, very high in the Netherlands. People basically, in the US, you have to take a big chunk out of your salary to pay for your health insurance. The same pressures just don't exist in the Netherlands. So that helps to close the gap in a big way. So

I mean, you know, I think the outlook for the European economy, that said, is pretty bad. You know, despite all of these debates that just go round and round and round and round in circles, you've got a number of big structural political impediments to the EU becoming a genuine single market. The US is a genuine single market. And I think that fact alone will explain more and more the divergence that probably will start to take place with the US really, really keeping going.

Whereas the EU is going to be kind of trapped in a low growth system. So I suppose I'm, I guess, so someone's like I said, I'm more optimistic than you are when we're looking at history and looking at the current day, but I'm more, I'm quite pessimistic when we're thinking about the future. Got it. You know, the,

this, the divergence has reached a point where like, even when we were, when I was with other professors, so professor at the university of Amsterdam, having dinner with me after I give a seminar and there's a bunch of physicists there and they're aware that like us salaries are like way higher, like the Nobel prize winner, you know, the university of Amsterdam is paid like less than maybe paid less than me. Okay. And, and, um,

uh, they were aware of that and they started cope. They, and you know, like, uh, of course, yes, they do get free healthcare, but I also get free healthcare through my job. Right. So, so it's like, but they would even resort, they even resorted to things at dinner, like saying things like, yes, but you know, have you been to a grocery store? You know, it's food is much more expensive in the U S than the Netherlands. And I'm like, well, like,

yeah, it's like 20% more expensive, but frankly, it's not a big deal in my monthly budget, you know? And then that they would be enraged by that or something. So, um,

It does seem like something's going on. It could just be that the euro, you know, a lot of this just could be FX stuff where the dollar is very strong right now and the euro is very weak. Yeah, I mean, that definitely explains the different GDP per capita or GDP measured in dollar terms for sure. But, you know, again, bear in mind, like there was, you know, in the 90s, right, particularly in the 90s, there was this massive exodus of,

British academics to the US. I'm thinking of like Neil Ferguson, like Adam Too, that people, they all left because the salary was so much higher. And that was a point, the 90s was a point where the UK economy was actually doing really well. So these differences have persisted for a long time.

I don't think they've got materially worse in recent years, would be my guess. And of course, I mean, I don't know. I mean, you'll know more about the Netherlands university system than I do. But like my guess is that a lot of it's publicly run. And obviously the kind of salary pressures there are going to be much greater than

in a lot of the private US universities. And then even the public ones have to match salaries to a much greater degree than would be the case in the EU. Yeah, the system is much more competitive here. There's much more poached people. I go back and forth with this topic because I'm British and go back and forth between here, between San Francisco and London all the time. And

You know, I suppose it's absolutely undeniable that you can earn a much, much, much larger salary, particularly in San Francisco, but really anywhere in the US. And actually, you know, like I think a lot of the public services in the US, the kind of classic quote from the people in the EU is that or in Europe is that like US public services are all terrible.

Which I don't think is actually true, to be honest. Like, it isn't actually that. That isn't the case. Like, the public transport in San Francisco is actually pretty good. Yeah. But that said, like, there are a lot of, you know, I think most EU cities are, like, way, way, way nicer to live in than most American cities. I think you're much, much less likely to be, like, shot and, like, killed and killed in a car accident and all that kind of stuff. So, like...

Ultimately, it's very hard to make some comparison. Also, by the way, I always lose weight whenever I go to the UK. There's something in the food here which is very, very weird. Even if your lifestyle doesn't change at all, you always lose weight. They give you huge portions in the US and they don't in Europe necessarily. There's so much walking because you're walking to the tube. I think you just burn a lot of calories just getting around in Europe, which is healthy, which is good. Yeah.

I would say that, you know, I really love being in the Netherlands, you know, because my, my recollection of it is like riding around on a shitty bike, slightly buzzed most of the time. And of course, no risk, no violence, no nothing. And then you, you get on this really nice bus or Metro system, everything works. And, um,

I had real sort of dislocation because I spent time in Europe, I spent time in the U.S., and I also spent some time in China in the fall. And there, the infrastructure is even better than in Europe. And so it's just crazy reconciling, oh, how much do people – what is the material well-being here versus here versus here? Because there are these important systematic differences and also purchasing power adjustments that need to be made. It's just crazy. Yeah.

Totally. I mean, the the I think what I saw one way of thought about answering this question is, I think the only or the cleanest way of measuring this is looking at, it's not perfect, but it's looking at the number of if you're considering two countries, right? So like the UK or the US, right?

how many Britons live in the U.S. versus how many Americans live in the U.K. Because those flows, I think, will indicate which country is genuinely better to live in. Interesting. Now, the problem, I mean, the slightly confounding factor is that the immigration regimes differ between the two. So it might be easier to move. You know what I mean? But it is the case that way, way more British people live in the U.S. Yeah.

than vice versa. So to me, that would suggest that life in the US is better than in the UK. Yeah. So maybe you could do that for other countries if you're interested. It's a revealed preference. Revealed preference. I mean, you know, you've got loads of Chinese people like desperately trying to get into the US, right? So that to me says that life in the US is still better than living life in China, despite the better infrastructure. But, you know, yeah. Good. Uh,

What's going to happen in the future? So I think you already touched on this. So and I think your main driver was because they're really not a unified economy. They're actually balkanized into small states, its own regulations and et cetera, et cetera. There will continue to be a big advantage in growth terms for the U.S. economy. Is that the main driver? Are there other drivers that you want to point to?

Well, I think that's the thing that ultimately matters. I think, you know, if you're a company that is in the EU that wants to grow quickly and needs to get a lot of capital, right, you just can't get it. You have to get it in the US. Yeah. The capital markets are just so much deeper in the US. And so your incentive to list there and to set up shop there is just much higher. I mean, you know, I mean, I talk to people in San Francisco, founders and, you know, founders in Europe, and they will say,

you know, we're growing really well in the UK. We'd love to expand into other European countries, but it means we now have to have, like, we've got to translate everything into French, translate everything into Italian, translate everything into German. We have to make sure we're complying with all the regulations in each of these countries. Whereas in the US, you just set up a shop and you just go, boom, because it's all basically the same, right? I mean, the great problem with the single market, which has been the case for a long time, maybe sort of 15 years or so, is that

they have completely failed at reducing sort of tariff barriers equivalent on services trade, right? You can now send goods...

It's completely freely between all EU countries, which is great. So, you know, Germans don't pay tariffs on French wine or anything. But, you know, a German trying to set up a legal service in France, for example, like just still cannot do that. So as a result, like, you know, for the kind of companies that like drive innovation, they're just not interested in expanding. That's a big problem. And, you know, I think even with the best of will in the world, and even if they do manage to get these non-tariff areas down,

The language barrier is still a problem. That isn't a problem. So maybe they're kind of consigned. Yeah, when I talked about Balkanization, language is one of the big factors too. It's not just the legal regime or the regulatory regime. It's also language. How much of the delta though between the US and continental Europe is just that

We culturally have somehow embraced, rightly or wrongly, a very optimistic view of risk assets and risk taking. Whereas like, you know, apparently Germans don't own any stock, right? So they don't even own houses. If I'm like, if I have a culture that doesn't believe in taking on, you know,

or doesn't believe in the equity risk premium, if you know what I'm saying, they just don't believe that it's going to pay off for them to tolerate a little short-term vol, then they're screwed, right? Because how can they grow their economy, right? They're not going to have deep capital markets, right? So some of this is just like a cultural storytelling to yourself, or maybe a realization that markets deliver returns, excess returns or something. I think there's a big sort of sociological part of the story here.

There totally is. And it's kind of worse than that because, you know, the money that's not invested in equities and stuff is then invested in government bonds. So you then reduce the cost of your government borrowing, which means you fund the welfare state expansion and that kind of thing. So it becomes this kind of circular problem. Right. Which is definitely a big thing. I mean,

I guess I'm always struck by being in the US, and particularly in Silicon Valley, with how motivated people are. And it's kind of cool in a way. It is also kind of lame in a sense, because everyone in Silicon Valley has enough, right? If these people were going to apply themselves to learning about Thomas Aquinas or Bosony or something, I totally support that. But the kind of

Acquisitiveness, you know, John Stuart Mill talks about this a lot when he visited the US, right? That kind of acquisitiveness that needs to be constantly richer and more powerful is both amazing, but also quite corrupting. Whereas, you know, you go to someone in Italy or France and, you know, you go to a restaurant or you go to a seaside town or something,

I mean, it's just amazing. Like you, you, when you're there, you're like, I don't need any more than this. This is like, this is, this is great. Like this is enough. And you know, there's a sense of enoughness. I, I totally agree with you. I mean, in the Netherlands, you know, as long as the sun was shining, okay. The, the, the pitch darkness during winter, that's a whole different thing, but just kidding. But, but, but,

When the weather was good, I definitely felt like, yeah, I could live on 1,000 or 2,000 euros a month here, no problem. And it's great. I love it, right? And why can't I relax? Why do I feel the need to like, oh, I got to message this investor about something, right? So yes, that divergence is for sure there. And it doesn't seem like it's going away. I mean, it's interesting because something that, again, comes up a lot on online, I guess, is this idea that

Japan has kind of found the answer because, you know, the streets are really clean.

The food's amazing. Everyone's really skinny. Everyone lives for ages and so on. And of course, GDP per capita basically hasn't grown or GDP hasn't really grown in many years. And, you know, so when you go to Japan, you're like, well, actually, maybe a bit like in Italy or something, you think, well, maybe GDP growth is not what it's cranked up to be. Yeah. Of course, the difficulty is that because the both in Japan and the EU, because either the sort of politics, I suppose, have

have meant that governments are unable to run budget surpluses or even balance the budget. And so you have these massive accumulated debts and massive contingent liabilities to pay pensioners for many, many years to come. And so you're in a problem where you really do have to increase GDP. Like if Italy genuinely decided to have a zero growth economy where it also balanced the budget and also didn't have massive contingent liabilities to its pensioners,

then it would, they genuinely really wouldn't have a problem. But the reality is that it has to cut its GDP, its GDP ratio, because at any moment it could all explode. Right. I mean, what's interesting is that there are some countries where they have actually bit the bullet and are now sorting themselves out. So Greece is a really interesting example. It's kind of got a bit under the radar, but like,

You know, Greece's debt-to-GDP ratio has fallen by like 50 to 60 percentage points of GDP in the past four years. Like, that is insane, right? It is. They got down to a really good hand. They had high inflation, high normal GDP growth, low interest rates. When you get the combination of those three together, your debt-to-GDP ratio can collapse very fast. In addition, though...

They have actually decided after the whole like Syriza, Yanis Varoufakis thing to, you know, to seriously implement reforms and their economy is growing pretty well. You're also seeing this in Spain to a degree. You're seeing this in Portugal. Like I don't think Europe is definitely screwed because there are some glimmers of hope, but it's mostly screwed. Okay, good. Excellent. Okay. Our next big topic, AI and jobs. Yes.

I believe you actually covered that. This is like one of your focuses, right? Uh, well, I've written about it. I mean, I've written about most stuff we've talked about. Okay. Sorry. But, but yeah, no, it is. It is. Yeah. Yeah. So let me tell you what, something that struck me recently as, you know, an entrepreneur that's actually working in this space. And so in our case, we build these, uh, AIs that can handle things like customer service and the voices, voice abilities, our capabilities are really good now. Um,

The AIs we built can really answer phones, deal with account issues, delivery issues, ordering food, whatever it is, pretty much at the level that a human can do it and probably cost much less, like actually less than one-tenth the hourly rate of humans to do it. But the rate of adoption is still very modest. And when we get a look into these call centers, they're

They have typically the back end systems are very antiquated. The humans that manage the call center are very risk averse because their job is mainly about nothing can blow up. If something blows up, I will get fired. Some whiz bangy Silicon Valley guy comes and says, hey, this black box is going to replace 80 percent of your headcount.

And the managers, the guy who owns that operation is thinking to myself, wait, I'm going to give away 80% of my headcount to this guy and I have no idea how that black box works. What's going to happen to my job? Right? Because after a while, then all the future improvements or management of that function are whoever runs the box, not him. So there's a huge amount of just, I would call this like human decision maker friction issues.

which is preventing, you know, obviously things should equilibrate. If I can do the same job at one-tenth the cost for you, you would think there's going to be some equilibration. But the timescale is just shockingly long. There's just so much resistance to it. And it's not like kind of this dystopian singularity

where they think, oh, AI is going to kill us or AI is bad. It's actually just very mundane friction that prevents these organizations from shifting their workflow. And so one of the interesting things for me is that even though in this narrow space we have delivered an AI that can do the job, the adoption is still extremely low and it's going to take years before it really is like a big chunk of the total work hours in the space. So any reaction to that?

Yeah, it's super interesting. I think the way you outlined it was theoretically really interesting because there's a kind of principal agent problem, isn't there? Because it's like a sort of public choice theory problem where the guy who has the decision over an efficiency improvement, which would be in the benefit or in the interest of the company at large, doesn't work in his interest or her interest. So he says, no, thanks. Just to give you an anecdote. So we were talking to the guy who owns the entire company.

customer support function for one of the major food delivery functions. I don't want to say the name of the actual company, but Uber Eats, DoorDash, that kind of thing. And he runs it. A big chunk of it is run out of the Philippines because that's the lowest cost English speaking workforce that they can use. And he just told us flat out, he said, well, my company is very technologically advanced because it's relatively, it wasn't a startup that long ago.

And so we're kind of building out a lot of these systems ourselves. But if you just go to somebody who has my job at a more traditional company, a company that is like 30 years old instead of like 10 years old,

That guy's just going to he's going to listen to you. He's going to take your meeting. He's probably got pressure from his CFO because the CFO reads these articles and the economists about AI and says, why aren't you delivering savings to me? And that's the main pressure for the guy. He's got to, like, act like he's exploring AI. But he doesn't want to buy the system from you. It's just a headache for him. It's a risk for him. And he's just going to stall you long enough so that he can retire or get another gig.

basically. And that's literally what we were told by the guy who owns the CX function for a huge organization. So I think, I feel like people who theorize about the deployment of AI in the economy just don't, don't have a granular picture of what, what it really looks like to the guy trying to sell the system. You know, I, that's really interesting the way you've outlined it. I mean, so the stuff that I've written, we've written about, about how it has definitely been on the more bearish side of things.

I mean, you know, there's this interesting kind of divergence that's taking place in the US and other robotic colonies over recent years, which is that, you know, consumer adoption of tech has been very rapid. So, you know, you see those classic graphs about like the number, how long it took for a charity PC to reach 100 million users for like, it was like three days or whatever it was. And how long it took threads to reach 100 million users. It was like one day or whatever. So everyone's got an iPhone and all that kind of stuff. So there's this kind of,

sense that like technology is moving faster than ever um but if you then look at what businesses are doing and you know businesses are the ones who drive the productivity growth there has been this like really interesting and very marked slowdown in productivity growth at the business level really since the financial crisis but even before where you know

innovations come along and just people are just not interested in them. And, you know, so, I mean, the OECD has got good data on like things like how long did it take for half of American businesses that even have a website, right? And it took ages. I mean, a website, right? It wasn't until like the 2000s, the mid 2000s. Or fax machines is another similar story. Fax machines definitely hang around. You know, I mean, it's much, much worse than Europe, but, you know, there's many, many European countries where like

If you want to buy something off a website, like the thing is on the website, but you then have to like phone or email someone to like buy the thing, they'll send it to you and all this kind of stuff. So yeah, no, I think that's absolutely right. I mean, so the best data set I think for this is from the Census Bureau. It's kind of been gone weirdly under the radar, but they have a very like frequent, I think it's every two weeks, survey of like many, many businesses, thousands, possibly hundreds of thousands of businesses.

where one of the questions they ask is like, how many, like, are you meaningfully using AI to do something big in your organization? Right. And it's gone from sort of like four to 5% in September, 2023 to like 7% today. So basically not much of an increase, but no, something it's, it's seen a higher increase when you wait by employment. So like the big companies that have more staff are more likely to take on AI. So maybe you're going to like 12% or 13% with some of the problem of AI and

But, you know, like I, I, even I have been surprised by kind of how slow it's been. And it's one of the, it's a bit like the Russia Ukraine thing where like what happened in March, 2023, when GPC four came out was like, people would say,

adoption is going to be slow, but just wait until 2024 and then it's really going to take off. And then 2024 will come along and then they say adoption is slow, but just wait until the fall of 2024 or early 2025. And you still haven't seen that. And of course, this is even before going to the question of like, is there an impact on jobs? Is there an impact on productivity growth?

No, there isn't. And I find it very odd that there are a lot, I won't name anyone, but there are lots of people, you know, working at very prestigious universities as economists who are just very oddly unwilling to face this problem, even to discuss it. It's very odd to me. I don't understand what's going on. The problem being the slowness of adoption or the slowness of... Yeah. Yeah. Yeah.

you know, there'll be some new invention and, you know, people will say this is going to change everything. Yeah. And then in practice, I mean, you know, just nothing really happens. And, you know, eventually I'll be proven wrong, I'm sure, but for now. I think the place where I've seen some discussion of this in economic history, you know, people use this term technology diffusion. And there they, when they do look backs, they are aware of how long it took like to go from like, oh, everybody has electric access to electrical power if they want it. But

Then, like, how do you reorganize your factory to really actually exploit this electricity? And it could be decades. Right. And people don't want to think AI is going to be like that. But but my my experience, it's not going to be that long, but it is longer than people expect. I really like your characterization of, OK, in our daily lives, if we see something that's good, we adopt it right away.

No principal agent problem, right? Right, right. This thing answers the bad email, the tiresome emails that I get. I will just turn it on and it will answer that. If it could actually do that, then I would not have to answer these tiresome emails. I would just turn it on. But in a company setting, you typically have more of a principal agent problem or more of like a kind of bigger organizational problem in trying to deploy something.

It's interesting because you've basically got, I think you've kind of got two variables, right? You've got kind of an X-axis and a Y-axis. And on one axis is like the complexity of the technology, which I would think that compared to something like the tractor in a farm or electricity or like the factory system, like a sort of GPT model doesn't strike me as complex.

You don't have to make that many changes to adopt it in some way. You're holding everything else constant. You don't have to make that many changes. I know this thing. You don't have to invest some enormous amount in a whole new factory or invest some enormous amount in a whole tractor.

But then the other axis is like the complexity of the firms that are adopting the technology. And I think if I'm just thinking out loud here, but, you know, the average size of the U.S. firms is obviously much larger now than it was in the days of electricity and days of the tractor. And the kind of ownership and decision making is much more diffuse than it used to be. It's much more bureaucratic. So I wonder if that results in change.

slower adoption of technology for a given complexity of that technology does that make sense yeah i well i think definitely the complexity of the firm because the number of people have to get their heads around it and agree to it um and actually even in a lot of cases where they are rolling out ai they're like we can't talk about this too much because the company doesn't want bad optics if it's they're clearly laying off a bunch of people right so it's like

sensitive in that way. Yeah, that's interesting. One of the interesting things is like the call center business is very good because it's a little bit like you said, it's not that complex in the sense that like the connection that goes to the headset that the human is using to service incoming calls is

I'm literally like, there's an API where I'm connecting, you know, the information that generates the sounds is some IP packets. And my engineer can interface with their engineer and we can just like make sure those packets go to the AI in the cloud instead of through that to the headset. So like, it's not that much work. They're not re-engineering like some heavy machinery in the factory, as you were saying. It's like, well, literally I'm plugging in the AI in place of the person. They still are worried because

They know like, Oh, what are the problems with a human? Like, Oh, that lady was pretty good until she got addicted to meth. And then we fired her. And then this person comes in late, but Oh, this person's a hard worker, but doesn't adapt very well. And we shift the scripts, you know, on the service, you know, they, they kind of, it's, it's, it's a, it's a, it's a ball of management problems that they're very familiar with. And the people that are on top of those organizations are,

They've been doing that for 20 years, managing apes to do certain tasks. Now I bring them this totally alien thing, which they have no idea what the hell it is. And like, even though I like, I turn it, I'm like, Oh, turn it on for 1% of your calls and we'll send you the transcripts and you'll see it's doing a fantastic job. It's better than your average human. It's still like a huge shift in their thinking. And there's, it could be that intuitively, uh,

They kind of know there's a bunch of tail risks in the AI technology that they don't really know. And they're totally different from the tail risks from their existing human staff. Like they maybe are intuiting that like, well, wait, maybe these guys are selling me something that looks really good, but it could go down. It could all go down one day and then I'm just screwed. Right. And how do how does someone who's not a technologist evaluate that?

Like those sort of tail risk scenarios, they have no idea, no idea how common or uncommon, like, oh, well, it could just get hacked, right? And all of a sudden, like we have to turn off our entire customer service, right? So there's just all these uncertainties that I think keep them from embracing. The people that would embrace would be like, I'm a founder, I'm in a growth stage company, and we're selling so much of our product that we need a CX function, but I'm building it de novo.

And I'm going to build it using the best tech. And I'm just going to roll out AIs. It's mostly AIs and a few humans to handle the really complex cases. And they're comfortable making that adaptation. But for existing companies, it's just a battle. It's a battle to get them to...

Very interesting. And I guess that means that, again, thinking out loud here, but you, so what you're, what you, if you're, if you're bullish on AI, then what you're reliant on to a degree is like the flow of new companies coming onto the market. Yes. So, but I guess the issue there is that the, the, the rate of entrepreneurship, despite rising a bit during the pandemic is still way down on it's like average in the sixties and seventies and stuff. So that, that flow is lower than it would otherwise be, which means that that kind of creative destruction, that churn happens more slowly than you'd want it to. Yeah. Yeah.

In fast food, so we actually operate in the space. So Taco Bell is rolling out nationwide. Like it's not hard. It wasn't hard for me in Michigan to find like a Taco Bell outlet that had the AI. So you're in your drive-thru and you talk to the AI and you can order your food. It's pretty good, actually. Wow. The woman who used to or the guy who used to take the order inside the kitchen with a headset on is still listening and can get pulled in.

But mostly you can just give the whole order to the AI and the order goes into the kitchen and then they give it to you. So, but Taco Bell is kind of the leader and all these other firms, they're like talking to their franchisees. It's a very complicated conversation because a franchisee might not want it or they're worried about it. And to what degree can the parent company dictate it to the franchisee? Sometimes the franchisee is more tech forward and wants to roll a system out and the parent

Corporation won't let them. So it's a really, what's the right way to say, inhomogeneous situation right now in food ordering. But the AIs are fully capable of doing food ordering better than humans at this stage. And so, but it's going to take at least a few years before you see it everywhere. Absolutely.

Absolutely. I mean, and then what about the question of like, does the question of what the customers expect or what the people think the customers will want? Does that come into it as well? Absolutely. It's uncertainty, right? So you don't know. You don't know whether people are going to get really pissed off at you. Like, I hate the AI role.

Like, how are you going to know? Like, if you put yourself in their shoes, the decision makers at Taco Bell, like there's the corporate and then there's also all the franchisees who all have different opinions of like, how is this going to play out? Like, is this going to like suddenly like take my sales, you know, or is it going to grow my. So there's a lot of decision making uncertainty with this stuff.

I think also this gets to, and this is quite speculative as well, but I think there's been this kind of shift in the West. And you can see this in some parts of the data where people are much more interested in avoiding big losses than making big gains. Loss aversion.

massive loss aversion um and it's got it's got well worse or better it's got more cues i think over recent over recent um decades possibly because we've got rich i don't know possibly because you know social media means that any failure that you might have is like broadcast to the world or whatever who knows right right yeah so i anyway i think if you then switch to the magnificent seven um

And you say, wow, what are these valuations based on? So we have this huge, I would say, bubble in the Mag 7. And you don't think it's a bubble. How's it going to pay off for you? Is it because eventually there's so much utility generated by AI that the earnings of the Mag 7, they actually, Microsoft starts making shit tons of money because Taco Bell is using their AI on the back end and all these agents are replacing people and stuff.

But is the timescale for that not a few years, but five or 10 years? And are investors going to wait that out? They're going to keep those valuations where they are while the actual revenues are very slow to materialize, much slower than expected to materialize? Or is it none of what I'm saying is important because we're going to get to super intelligence and all of a sudden, like, you know, like that thing invents like a cure for cancer overnight for us. And that's that's where I'll be.

has come from, right? I mean, there's lots of version there, right? Because if you're the company that doesn't massively invest in data centers and then your competitors manage to finally give a cancer or whatever, then you look like an idiot. So there's that. I mean, I think there's the kind of Goldman Sachs argument from their head of equity research or something, which is like, you know, they're spending roughly a trillion dollars over the next 45 years on AI. Like, what's the trillion dollar problem they're solving? Right?

unclear, I think, as you say, because of this deployment problem. But then you go back to the companies and the people who are bullish on the companies and they'll say, yes, but if you look at CapEx relative to cash flows, information technology, that ratio went completely nuts in the late 90s in the tech bubble when they were investing hugely in CapEx, which just had actually no cash flows to back it up whatsoever.

the ratio now is kind of in line with the long-run average because they've just basically, since the pandemic, they've just become even more money-printing machines than they were before. So in a sense, you could say that it might not be sustainable, but it might not be a big problem, I guess would be the argument. But

I don't know. I mean, as you say, the market is still expecting massive, massive revenue growth at these companies for years and years and years. I mean, I think these companies had a once in a generation shock, positive shock to revenue and earnings, which is basically the shift to working from home.

because of the pandemic, like fingers crossed, you're not going to get that again. Like, you know, you're going from 5% of people working at home to 12%. Yep. That's a huge earnings positive shock to, to, to, to mag seven. Yep. Um, will that happen again? Probably not. So yeah, I mean, I just go back and forth on this question for sure. Yeah. I don't know the answer. And, uh,

Yeah. I'm right in the trenches because I'm one of the guys who's trying to generate the revenue on the back end. At least before DeepSeek came along, that back end revenue would go back to OpenAI or whatever. Now it might not. In fact, we've checked. We can swap in these open source, these DeepSeek models.

perfectly fine for what we were doing before, which was using, say, OpenAI or something like that. So that whole thing... I mean, the Microsoft argument is that their revenues... What you hear from the company is that revenues from Microsoft's AI business have increased much faster and to a much higher level much more quickly than their revenues from Azure did. And yet they're spending about the same or only a little bit more on...

AI capex than they were on cloud capex. And so there's no problem. Now, I mean, that might be true. Of course, it then raises the question. I mean, I would wonder if what counts as AI spending is

It's much harder to measure, I think, than maybe what counts as your spending. I don't know if that's right, but you can imagine that some lackey who's an upper-middle manager would be quite incentivized to count things as AI spending that might not be AI spending to make the numbers end up. But I don't know. I think the thing that we do where we're literally replacing human labor with AI labor, and we can really see what the return on investment is,

These more like fuzzy things were like, oh, the your meeting got transcribed and you have a nice summary of the meeting. And it's like, wow, that is magic. Like we could not have imagined years ago that that was possible. But like, what is the actual productivity gain from that? Like, did I actually get any productivity? Oh, I have a nice summary of the meeting and I can look at the transcript if I want to. But.

But that makes Microsoft some money because somebody is paying for that service, right? Although maybe they're not. But yeah, so the way the whole thing is going to settle out is still somewhat mysterious to me. Yes. I mean, there is that sort of joke about, hey, either person one

gets notes and asks strategy to turn it into a PowerPoint presentation. And person two takes a PowerPoint presentation and asks, say, to turn it into notes. Yeah. I mean, there is this interesting... Yeah, I think there's a lot of non-productive churn that's going on right now, actually. There is this kind of theme that you get, that is explored, again, by some historians, and I think may also apply to AI, which is this idea that it's sort of a bad thing for productivity when the costs of producing content go down a lot.

So, you know, I mean, I think these are very simplistic correlations, but like the relationship between the length of the US tax code and the ease of writing stuff out on a computer and printing it out, right? Yes. There's something there. And so you can imagine this world where a huge amount of like AI slop is being sent around both internally within companies and externally. I will tell you a story which you might enjoy, which was a shocking experience to me. Okay, so...

another startup that i'm involved in which is in genomics and it uses ai but a different kind of ai than gen ai but we were looking at a proposal from the saudi government to build a lab there okay and uh

So the CEO asked, I'm not in the day-to-day operations of the company, but I'm on the board still. I'm one of the founders. And the CEO asked this very junior person on her business team to look into some of the details about like, oh, how hard is it to hire people in Saudi? Can you fire the, just basically, what's it like to operate there, right? And-

so I go into this meeting. She's like the, the connection to the Saudis was like through one of my connections. So, so I was kind of involved peripherally in this. So, so I got pulled into this meeting, right? So I got pulled into this meeting and this young lady is giving a presentation to us about what she learned about researching just what it's like to operate a business in Saudi KSA. And, uh,

I'm listening and I'm like, you know, she's really not saying very much. You know, does she really know what she's talking about? Like, and then I realized the whole presentation was AI slop. The way this woman had done her research was she probably just asked Chad GPT the questions that the CEO wanted answers to. And, you know, those were important questions. You should go online and find out what, you know, what's minimum salary, what's employment law, what do like leases look like? You know, what are the regulations on laboratory search? You know, like,

There were real questions to be answered, but she got superficial, shitty AI slop answers. And I was about to like throw my, you know, my, my glass through the screen of my TV. Cause I wasted like half an hour listening to this. I was like, cause it took me a while to figure out that I was listening to AI slop. And then I realized like, I'm not getting any deep information from this. This is just like slop. And then I realized she just got it from GPT. So that's yeah. Negative productivity. Yeah.

Totally. Yeah, absolutely. Yeah, no, I think that's a real risk. I mean, I think the other sort of more subtle risk, I think, which is I'm very convinced by is this kind of, it's a sort of adaption of a Paul Graham argument, which is like, when you get somebody else to do your writing or searching for you,

the process of thinking stops. Yes. And I think that, I really think that's quite a profound insight. Because there are, I mean, there are, I mean, I know this myself from being a journalist, like there are some things where the only way to really learn about something is to try and bite it out in a clear way. And you really discover very quickly what you don't know.

Yeah. And if you want someone to do it for you. Yeah. If you formulate your own arguments and you're critically trying to lay it out, you know, readers are going to hold you to account. You're like, that's a different kind of processing than just like cut and paste from what they said. Right. Which is, I mean, there was a nice presentation. There was a PowerPoint there. Yeah.

Yes, yes, yes, yes. I'm like, wait a minute, but this is not answering our questions. Like, we need to know this, the answer to this, this, and this before we decide to green light this, right? And, like, you didn't answer my questions, right? Yes, yes. I think it also very much raises the, sort of, the alpha to, you know, like,

involved in finding texts that are maybe not out of print or not readily available online. Things that you have to go to a library for or you have to get from eight books or something. There's really interesting ideas or old documentaries on the BBC that no one's seen for years and years. The kind of insights you can get from that, I think the value of taste, I suppose, will, I think, go up quite a lot when there's so much consensus information that's so easy to find. Yeah.

I think the danger is a lot of people don't like you and I have some idea of what's going on when they train these AIs, but a lot of people have no idea. So they don't realize it's giving them consensus slop back. So imagine you're not you're not like super high on the cognitive scale. You're just kind of an average person and you're being told to research something and you don't realize what you're getting back is some average slop. Right. Consensus slop.

Not to, yeah. Anyway, I just think a lot of junior people at sort of ordinary firms could get caught up in that without knowing it. I think they already are. I mean, I hear lots of anecdotes about precisely this, where like some senior person is like, what the hell have you just produced? They're like you, like you with this person for the salary thing. It was a crazy experience. It was a shock to me. All right. So we're running low on time. Last question.

We've talked before about the concept of stagnation and productivity growth, technological innovation. Our friend Tyler Cowen and Patrick Collison are active in researching this area. It's called Progress Studies, and it studies, you know, how do economies and societies really progress? What are the main factors that control the rate? How does technology diffuse once it's invented into the actual practical applications? What's something interesting I think that you and I talked about last time we saw each other

I think Tyler has thrown in the towel because he's now saying like, well, you know what? I was wrong because all the time I was complaining about the slow rate of progress and stagnation. While I was complaining, they built this AI and I love this AI. And now I can see there was progress. I just wasn't aware of it. And now I think progress is going to be super fast because of AI. What do you think of Tyler's point of view?

Well, my personal view would be that Tyler Carey is way too bullish on AI, but that's sort of one thing. But I think that the point that he had made with Collison, but also Peter Thiel has argued for a long time, is that once you take a step back from... What's Thiel's formulation? It's like bits and atoms or something. Once you step away from tech...

broadly defined, which is bits, I think, and look at atoms, which is like real stuff in the economy, then I think it is pretty obvious that there has been some slowdown, quite market slowdown, actually, in progress or in kind of the quality of life broadly defined. I mean, if you think about things like

You know, travel speeds around most countries are falling, having been increasing for a long time. And certainly in the UK, you know, during the 19th century, 20th century, you know, the average miles per hour of a trip was going up and up and up.

And that has plateaued and now is falling. You know, you look at things like, I mean, there's crazy things like how quickly it takes to put up a building. You know, that takes ages now. San Francisco put up the Golden Gate Bridge in three years. The Empire State Building went up in a year. Like, this will never happen now. You know, things are things like, I mean, I guess this is a bit close to bits, but like, you know, the quality of a telephoning call sounds incredibly analog, but like,

Telephone calls still have terrible audio quality. And they just haven't really improved in many years. It was interesting because when Peter Thiel was on the Joe Rogan podcast a few months ago, I think Roven put to him what I think is the typical objection to his ideas, which is like, aren't we surrounded by amazing technology all the time? And I was quite surprised by how Peter Thiel was oddly quite... He wasn't able to respond very quickly to that objection.

I mean, the one he ended up doing, I think, was that we haven't landed on the moon since 1971. Which again, is a great example. Why haven't we landed on the moon? It's nuts, right?

So I think there's loads of examples. I don't think that like AI, which obviously is, I'm not trying to say AI isn't amazing because obviously it's completely amazing. I use it all the time, but like the notion that AI by itself undoes all of that stagnation strikes me as just completely wrong, you know? Yeah. My view on this is that, so the basic observations about like average velocities of travel have not changed and,

time to put up a building, you know, has increased a lot. I think those are observations are all true. Some, maybe for the buildings, it is bureaucracy and red tape. It's maybe not a technology thing, but,

For some stuff like, oh, could we fly around at 5,000 miles per hour instead of 500 miles per hour? There are real kind of physics limitations. So there's a low-hanging fruit story where when it comes to the atoms, we picked a lot of the low-hanging fruit. And now the rate of progress is just slower.

One thing I would say in that context, though, is that if instead of looking at macroscopic things like how fast we fly around or our buildings, if you go the other direction, look at nanotechnology, like what we can engineer on a microchip, that has improved by factors of a million. So we did get factors of millions relative to, say, the computer that they used on the Apollo project.

We did get that, and that is why we have AI now. So we did our mastery of the physical world really shifted toward the quantum world, toward the nano world, but we did master it. And it's kind of invisible to most people because most people don't really understand what semiconductor physics is or something like that. But that's integral to like, wow, this AI thing is passing the Turing test. And that wouldn't happen if we just didn't have like factors of a million in compute advanced technology.

Totally agree, but I think that's the atoms v bits point of it. Well, but I think where I would kind of like berate Peter a little bit on this is like your bits, we can do the bits because literally on the atoms side. Okay, fine, yes, yes. Master the atoms. We didn't master like making planes that can fly 5,000 miles an hour, but we did master the atoms, and that's why we're able to move the bits around, right? Yes. Yeah.

I guess my only counter to that, I suppose, would be to say that I think the regulatory system in which technology operates is as important as the tech in a sort of all-out sequel sense. So, I mean, you know, I mean, to use the example of the airplane speed, I mean, my understanding is that like average or maximum airplane speed in the U.S.,

has been fixed for many decades. And we would very easily be able to go 20 to 30% faster as indeed we did with Concorde, but the regulations were such that we're not, we're not allowed to do that. So I, you know, the government plays a big role. There's a kind of hard thing, you know, because if you're supersonic, there's all kinds of bad things like sonic booms and the, and, and the fuel usage grows like the velocity squared. So, um,

There are reasons why we kept out at a certain level and we just don't want to be flying around at 5,000 miles an hour because then you get a plasma layer in front of your plane and it's a real problem for the pilot. So it's just there's actual hidden things here which really come from physics that people just generally aren't aware of. For macro. I totally agree. I just think we're way, way, way short of that frontier. You know, like the advent of the TSA in 2002 or whatever it was, like

That has surely, surely, surely caused net social losses in the billions to hundreds of billions of dollars, right? I would differentiate between like some bureaucratic or social system things are holding us back and like physics sometimes is holding us back. And I think one of the big stories, which I think people are slowly coming around to because of the big data centers power story is,

We basically left this whole nuclear thing on the table. So if you talk to physicists in the 50s and you read science fiction from the 50s, they all assumed we were going to have basically unlimited energy and actually be using nuclear-powered spaceships and stuff very soon because we could have done it. But people were just so irrationally scared of nuclear energy for the last 50, 60 years that we didn't do any of it. And now we're kind of now reconsidering our irrational fear of

of nuclear energy. And we can now do a look back on, well, how many people in France got killed by nuclear energy? How many people in Japan got killed by nuclear energy? Almost none, right? So now we can both have a very long look back period for safety and it's becoming more of an acute issue to generate clean energy. So I think the whole, but historians will look back and go, wow, these apes got to the nuclear frontier and then they just didn't improve it for 50 or 60 years. And then they started, right? So very interesting.

Yeah. So Callum, it's been great chatting with you. You know, I, you know, maybe we could do a regular series where we just come in and you, you enlighten us on specifically economic topics. That would be fun. I'd love that. Cause there's a lot of, you know, it's one of those things that gets really bad coverage and especially online, it's going to be really bad. So that sounds great. Yeah. Great. All right. Well, thanks a lot. All right. Thanks, Steve.