Better Offline - Rot Economics with MIT's Daron Acemoglu

Episode Date: July 24, 2024

In this episode, Ed Zitron sits down with famed MIT economist Daron Acemoglu to talk about the economics of the tech ecosystem, the ridiculousness of generative AI's promises, and the realities of tech's growth-at-all-costs ecosystem. Newsletter: wheresyoured.at Reddit: http://www.reddit.com/r/betteroffline Discord: chat.wheresyoured.at Ed's Socials - http://www.twitter.com/edzitron instagram.com/edzitron https://bsky.app/profile/zitron.bsky.social https://www.threads.net/@edzitron;See omnystudio.com/listener for privacy information.

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Apple Podcasts, or wherever you get your podcasts. AllZone Media Hello and welcome to Better Offline. I'm your host, Ed Zittron. Not really going to dawdle too much on the intro today. I'm too excited about the interview you're about to hear. Today's guest is a globally known economist, the author of Why Nations Fall and Power and Progress. MIT's Daron, Asimoglu.

Okay, so a term that you've popularized, not necessarily invented, is creative destruction. Do you mind explaining it for the listeners? Oh, yeah. I mean, I definitely did not invent it. and I think many other people deserve much more credit for inventing it and making it work. It's this idea that goes back to Joseph Schumpeter, a famous Austrian economist who spent most of his career or the most important part of his career at Harvard, who emphasized

that in capitalist growth, you will have new firms taking market away and destroying old firms and as a corollary of that new technologies taking market share away and driving out old technologies and he understood this was a difficult and tumultuous process but also believed that that was the essence of sort of capitalist growth so it's one of these things that is a fact of life in a market process, but different types of social, economic and political reactions to it are natural, and how you react to it is going to have various effects, both on growth, what type of growth and its distributional effects. Right.

So something I've written about and spoken about a lot as well as, like this idea of the rot economy, which is the kind of growth has overtaken most of the modern markets. And I'd argue, at least in the creative destruction field, tech has stopped really innovating. It doesn't feel like they're creating things to create new jobs, to create new markets. I'm wondering how you feel about looking at the general tech industry. I am a critic of the tech industry, and I have become so over the last decade or so. and my problem with the tech industry is not its dynamism. I applaud that.

It's not its risk-taking. I upload that. And it's not the drive towards economic growth, which I think is also generally desirable. But it is the direction of research and technologies that the tech industry has focused on, both because of ideological reasons, and because of a particular business model that they developed. And I think both of those have pushed us towards technologies that I see as socially less desirable,

in some cases actually undesirable. And as a result, we're actually getting growth without as much social benefits. And let me try to just make one very simple point, which everybody nods when you say that, but it still is important to put in the conversation. Economic output, as measured by statistical agencies such as gross domestic product, does not have any welfare element in it. So if I find a way of hacking into your computer spending $1,000,

and you find a way of defending against me spending $2,000, that will increase GDP by $3,000, And I think even the most demented person wouldn't say that that's a social improvement. Yeah, I think you made a point like this, the Goldman Sachs, where it's about like you could make a trillion dollars if you did deepfakes in a certain manner. Exactly. So, therefore, new products that increase GDP may have socially undesirable consequences. That wasn't part of the original Schumpeter point.

And it's not something that I would worry about when I'm talking to people, in Mexico who are trying to get the economy going, but it is a very important concern when it comes to new tech. When do you think this shift happened? You say the last decade, what was it that kind of changed for you? Well, I think it was probably a gradual process, but the tech sector initially was very heavy on hardware, with some software elements. Right. And when that started changing and the entire field became software, I think the possibilities for different types of technology to go in very different social directions also multiplied. Right.

So money today, Nvidia being an exception, is not made by hardware and even in VDIA. I think a lot of the innovation is with software. Particularly with Kuda being able to do stuff with GPUs. Exactly. Yeah. But when you are also doing software. you have ways in which that software becomes an information control tool, a monitoring tool or surveillance tool. It becomes a way of automating work in various different ways. It can become a manipulative tool. And it can also create lots of new products. Some of them very beneficial, but some of them very addictive and conducive to mental health problems. So I think software sort of expands the capabilities. But together with the capabilities, you also have expanded set of distortionary or manipulative things that you can do.

Right. You mentioned the kind of dynamism element of how tech is working in the growth. I don't know if I agree that tech is in a dynamic state. It almost feels like it's been spinning its wheels for the last few years. Crypto, Metaverse, all of this stuff. It doesn't feel like new things are happening. Well, they are new things. It's just that I think you are saying what I just said in a different way, and it might

be that your way is better. They're not super socially valued, but they are new products. So you would say that metaverse or virtual worlds are a new product by any category. It's not just not something that's going to make humanity better. In fact, it might make humanity worse by alienating them more or isolating them more from their social milieu. And there is another element of what's going on here, which I'll comment on. But again, it doesn't contradict that they are generating new products. a lot of new technologies and new ideas that are being invented in tech are not being implemented.

And part of the reason for that is the competitive environment. Google, Facebook, Microsoft, Amazon are all buying up on Facebook are all buying up a lot of competitors and not even sometimes using their technology. So that's the consolidated structure. So the invention is there, but invention is not translating into implementation. Now, don't get me wrong, some of that invention may also go in the wrong. So a better version of, you know, TikTok may not be a great thing either. But there is that consolidated, concentrated market structure that is also changing what gets implemented.

The thing I'll push back on is they're making new things, but it feels like the ones I mentioned, crypto, metaverse, and now generative AI. They're not producing actual products at the end. It's not so much that we couldn't live in a virtual world or that digital market. money wouldn't be useful, but it's more that the actual output from the companies is not translating into meaningful products. Well, again, this is a question of what we are measuring and what we're measuring is the right thing and whether it's really welfare relevant. But if I create a metaverse and you're willing to pay a million dollars for it, that will

increase GDP by a million dollars. So that's a new service. Right. A lot of things we consume today are services. It's not something produced like a T-shirt or a car. They are based on digital services. Now, of course, to produce those digital services, we're actually using real resources such as energy.

But what I actually buy from you maybe or what you buy from you may be just a digital service. Now, some digital services are extremely useful, and some of them are useless. Some of them may be bad for you. Right. I think my point is more, they're not making particularly useful services.

they're doing well monetizing the things they've had for years, but it kind of reminds me of something you wrote in 2019, where you were talking about automation and effect on growth, but also we may have run out of ideas for generating new high productivity labor-intensive tasks. Do you think we're approaching that point? Thank you for raising that, Ed. So I think that is a very, very important part of my thinking.

I would say that the tech sector is not producing sufficient new tasks for workers to use their skills and to expand their capabilities, and firms perhaps are not demanding and implementing enough of them. But it is not, according to me, because we're running out of possibilities. It's just that we haven't focused on those. And that's where the ideology reference earlier on that I made comes in. I think the software industry would have done somewhat more productive things

if it did not become too focused on replacing humans, having machines as humans overlords, which today has, of course, reached its apex with the craze on AGI. Another podcast from some SNL, late-night comedy guy, not quite. Unhumor me with Robert Smygel and friends, me and hilarious guests from Jim Gaffigan to Bob Odenkirk to David Letterman, help make you funnier. This week, my guest, SNL's Mikey Day and Hempherson.

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I get that that might be what they're pushing toward, but generative AI isn't even automation at this point. A lot of what you've written about AI is correctly, like the effects of if we automate these tasks, but it feels like they aren't even successful automating anything. Absolutely. 100%. Thank you for saying that. My take is that generative AI is actually an informational tool.

Right. So you should use generative AI as a way of generating, filtering, summarizing, finding, checking information. That's actually what it's good at. If you try to use it for other purposes, sometimes you can get away with it, but it won't be very good at that. So you can try to automate a lot of warehouse tasks today by using the current crop of robots. People don't do that because they are not good at it. if you did it, costs would go up, people would lose their jobs, delays would pile up, but you can do it.

It's the same thing with generative AI, even though it's not an automation tool, automation wouldn't be its best use, especially given the current unreliability. Even though there is something else that we could do better with it, I think many people are going to use it for automation, because that's the why, that's what companies are being told. You know, if you talk to business leaders today, everybody's asking them, financial journalists, their shareholders and their friends, where are you with the AI investment? So that's the hype. And then people are going to rush into use AI to implement AI, even when they don't know

what to do with it. And automation will often appeal to them because it's like the easiest thing to do. It's the thing that they may have experienced from other technologies. And it's the thing that some people are telling them that that's what they should do. There are companies, integrators, websites devoted to automation AI, even though it wouldn't be very good at it. I mean, again, it could automate some tasks. You could have more of your customer service done without people.

Right. Even then that feels like a stretch of what automation means, because sure, the customer service example, and I think you may have raised this point as well, how does it get better, how do you measure better, in the case of customer service? But even then, it's automation only in so much as you can trust it. And it feels like these core issues of hallucination

almost kill the concept. of automation with generative AI? 100%. So here's a good use case for automation of customer service, which is you call your bank and you enter some password and they tell you your balance. That's perfect. You don't need a person there to tell you the balance. Right.

Because the current technologies can faithfully take those numbers and communicate them to you after the right security steps. Yeah, and it's not a generative answer because it's a number in a database. It's not a generative answer. So now put generative AI in there, you're probably going to get lots of incorrect answers. Yes. But some companies might still do it. Which is, it just feels like a crazy time that you have companies shoving this through,

almost like the very much like a post-Jack Welch situation where... Yeah, exactly the Jack Welch mindset. Do you think a part of the problem is that the people running these companies aren't really technologists? I don't know. Look, I think this is another branch of my work, but... U.S. businesses are often led by people who have been trained into thinking that their only priority should be increasing short-term shareholder value. And a very effective way of doing that is cut labor costs. But A, that's not the right social objective.

Even maximizing long-term shareholder value is not the right objective. But even more fundamentally, cutting short-run labor costs may be an illusion and be associated with longer-term problems. So if you have a company where your workers are skilled, talented, they are very useful for liaising with customers, creating new services, products, innovation, you can in the short-run cut your labor costs, but it would destroy you in the long run. I think many more companies are in this bucket than American business leaders realize. And it's funny, you mention that. I've heard a lot from Google people in particular. I get emails from Google people all the time because I did an episode about a particular guy. And it's funny, they all talk about the kind of brain drain of layoffs that you don't realize it's not just the output you're losing. It's the person who knew how the stuff worked and where the stuff was and who built the stuff

and why the stuff is good or that. And it almost feels like American capitalism is dramatically. disconnected from labor in general. Yeah, absolutely. So look, I mean, I think there is a tremendous amount of tacit knowledge that workers have, which often gets unrecognized, and even bosses sometimes don't recognize that. So both French and British trade unions in the history experimented with these types of strikes where workers just follow the rules. They do exactly what the rulebook says their responsibilities are. And it turns out to be quite disastrous for the company, because most of what actually workers do is much more adaptive than just following the rule. Right. Like kind of outsourcing risk almost. Yeah, it's just like, you know, the rulebook says,

you know, operate the machinery, but you know when to actually operate the machinery, not just operate the machinery. If I hear this sound. Yeah, exactly. Yeah. So that's the kind of tacit knowledge that people acquire via training, via experience by their social network, talking to friends. And if we don't value that, we'll lose that, and it's going to be very difficult to replace it with what machines or information technologies do. Do you think we're in a bubble right now? Define a bubble. Actually, let me reframe the question.

Do you think generative AI is a trillion-dollar industry? Do you actually think it is the next hypergrowth market? Let me answer that question slightly indirectly. Sounds good. I believe that generative AI has the capacity to add a trillion dollar or more over time if we use it correctly. Because as an information technology, it has great capabilities. We live in an age in which useful information is scarce. All sorts of chunk you don't want is on the internet, but when you actually need to solve a problem, get better at what you're doing, get more background information, those things.

are very difficult to find. And generative AI could be a tool for providing that sort of information to all sorts of decision makers and workers, blue-color workers, office workers, and so on. But that's not the direction we're going, in which case I don't think it's going to add trillions of dollars of true value. But that also doesn't mean that generative AI companies are going to go bust. Right. Because they're going to be able to monetize this another way.

So if generative AI enables you to take over the search market from Google, that's a huge amount of money. It may take over the search market from Google without providing much better service to consumers, but it might still be hugely profitable. If generative AI companies convince businesses to invest in generative AI, that's going to be very profitable for them, but not so good for the businesses that misinterpreted. Right. So the thing is, and I understand why you're making these assumptions, but. what if it doesn't get cheaper? Because right now, the thing I've been on about with generative AI is,

on top of not being super useful, it's so unprofitable. And every report seems to be suggesting it isn't making people money. What if it stays where it is? Because in the last 18 months, GPT40 is not significantly different. What if they've stalled?

What if this is all we've got? My guess is that it will get somewhat cheaper because right now it's very costly to even answer queries. And with more GPU capacity, it will get somewhat cheaper. With better designs, it will get somewhat cheaper. But I do not believe that there is a scaling low in there. So many people in the industry believe in this mysterious scaling law, which is that you double the GPU capacity or compute capacity, you double the data and you get twice the performance. an aberration of Moore's law by people who don't necessarily understand it.

Yeah. But first of all, what does it mean to say double the data? Right. We're going to throw more Reddit at it. So even if there was such a scaling low, you would require high quality data, which we're not producing. Run out. We're not paying for it. Yeah. Another podcast from some SNL late night comedy guy, not quite. Unhumor me with Robert Smygel and friends, me and hilarious guests from Jim Gaffigan to Bob Odenkirk to

David Letterman help make you funnier. This week, my guest, SNL's Mikey Day and headwriter, Streeter Seidel, help an a cappella band with their between songs banter. There's that worst singer in the group? The worst? Yeah. Me. Is there anything to the idea that because you're from Harvard,

you only got in because your parents made a huge donation. The group. The yard herds, right? That's the name. The Harvard yard, but they're open. Do you have a name suggestion? We're open. since you guys are middle-aged.

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they'll hear your message. Plus, only IHeart can extend your message to audiences across broadcast radio. Think podcasting can help your business. Think IHart. Streaming, radio, and podcasting. Let us show you at iHeartadvertising.com. That's iHeartadvertising.com. Hey, everyone, it's Writer Strong and Wilfridell from PodMeets World. And now the Podmeets Twirled podcast. We're two men who were completely clueless to reality TV, who now have covered Dancing with the Stars. Traders. And we're gearing up for the season finale of Survivor.

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about the whole thing as it stands. There's not really much of a social output. It's helping automate away, jobs promptly held by contractors, which is already a problem onto itself. But also, it doesn't seem to be making the money. I don't think I've ever seen anything like this in tech. And I'm just wondering, indeed, maybe this is the question. What happens if this is not it, but also tech doesn't have

a next step? Do you think one of these big companies could die? Do you think that there is actually an existential risk if Generative AI and all this falls apart? No, I don't think so. I think none of these companies, you know, are just committed to generative AI. They have other businesses that are making money. And even Nvidia can make still a lot of money with the GPUs. Let me rephrase it then. So right now, all of these tech companies, they do very well and their multiples in the markets are because they have a relatively low cost of goods, like their actual costs are pretty great. But they're predicated on this ongoing growth. They must always grow. But what happens if they don't have a new growth thing? Because they haven't for a while. And what if they turn on generative

AI. Like, this feels like this could be an economic panic onto itself. Yeah, it could be. There could be some drops in valuation. The general pattern we have seen with many other products and technologies is that it looks a little bit like an S curve. Right. You have an acceleration and then you plateau, and that's when new products are invented, new investors move on to other things. And that hasn't happened with tech. You know, Microsoft is living its fourth life or whatever since MSDOS. Partly because they have acquired new businesses, some competitors, some competing technologies, and sometimes some tech companies have invested in the wrong things. I mean, cryptocurrency was more crazy than AI. There, I really didn't see the use case. The question I keep, and I've asked a lot of

people this, is just what happens if there's nothing, though, because, growth is slowing. There is a pattern of slowing growth within these companies, and there isn't a new thing that they can pick up and acquire. I don't know whether tech has ever had this happen is the problem. Yeah. It's a good point, but it's even deeper than that. Growth has slowed in the industrialized world, and it's not a new phenomenon. This is one of these paradoxes, which needs to be repeated more and more. The tech age has also coincided with a slow. lowdown of aggregate growth and every indicator of aggregate growth. So we are growing much less today than we did in the 70s or 60s. Productivity is growing less. And I think this is also related to the fact that we're not getting enough out of the new technologies and the new ideas and the new scientific discoveries that we are making. And part of the reason why there is so much hunger for an AI hype is that many people, including policymakers, by the way, are wishfully thinking,

oh, well, this could be a solution to our productivity slowdown. So perhaps in the next decade, we can have a much faster productivity growth thanks to generative AI or thanks to AI. Right. New jobs and such. Yeah. New jobs, sudden discoveries. So almost history is kind of slowing down. I've not really heard anyone really discuss it in these terms, but it's interesting. So you've seen that this is the growth at all costs is everywhere and growth is slowing. But it sounds like growth isn't just about a money thing though. No, no, growth is not just about money thing. And I think if you do look at other indicators, we're doing worse. One of the regularities of

the 20th century across the world is that health and life expectancy have improved. Right. Today, people in sub-Saharan Africa have twice the life expectancy at birth as people who lived in London or Manchester in the 1800s. Right. And Americans have had tremendous improvements in life expectancy and health until the last decade, when it's slowed and it started getting reversed. So on many indicators, we're actually doing even worse than GDP suggests. So what's contributing to it?

Is it a welfare issue? Is it a societal one? Is it? Well, I don't think there is a clear answer. Some people think it's because of, you know, the life expectancy part. is because of early deaths due to alcoholism, opioids, and drugs. But there is a more general deterioration. Mental health. There's a mental health crisis. So if you look at health of surviving people, it's much worse if you're factoring that mental health issue. I wonder if it's also

where tech falls into this as well as the exposure to social media. I've had this overall, which is one of my flimsy theories, that I don't think people should be thinking about politics as much as they do. Not saying people shouldn't be political, but just the immediacy of political discussion has been erosive to people's mental health. Well, I'll give you two factors that might perhaps support your idea, although I'm not sure whether I completely agree with it. But one is that if you look at when the mental health crisis seems to start, it coincides with smartphones. So people accessing social media and other things on their smartphone's 24 hours a day, might have something to do with it.

Another one is due to economists, Hunt Alcott and Matthew Genskow, they did this experiment where they incentivized Facebook users to stop using the platform. Right. So when people stop using the platform, their mental health improved. Right. But they can answer questions about what's going on in current politics much less well. So their at least immediate superficial knowledge of what's going on in politics also declines. Interesting. Yeah, it does feel like there is a wider discussion.

Eh, discussion, perhaps, is the wrong word. Within the tech industry, there is almost no consideration of the social aspects or the welfare aspects of any technology being built. The Metaverse, for example. As ridiculous as that was, I can understand an executive being like, yeah, we use the internet now. What if we used more internet? But just no consideration as to whether people wanted to. It feels like there's just a disconnection between capitalism, people. I mean, I think tech is much more complicated. Oftentimes, it's multi-use, so something that may appear to have good users, also has bad uses. But I do think that tech workers also need to own up to greater social responsibility. Right. So if you are a physicist, nuclear physicist today, it's unthinkable that you do not have some social responsibility-related knowledge as well as training about, you know, nuclear weapons. My best mate is a nuclear health and safety person, so I feel will appreciate that. But the same degree of thinking about ethical implications,

social implications, what happens if I unleash this on humanity doesn't quite exist to the same extent in the tech industry. And I think it's going to develop. There are many people who are very socially minded in the tech sector, but I think we may need something more systemic. And what would regulation look like? On a better note, I suppose. What can we do to kind of reverse this disconnected trend? Is it regulation? Is it better safety culture? Well, all of the above, but here is a problem I have with both regulation and the discussion that we have about regulation. It is very reactive. Something happens and we react to it by thinking of how can we regulate so that we reduce the harms. But the problem, as I try to

articulate, including in the earlier parts of this conversation, is about what types of technologies we are developing, where we're putting our efforts. Exposed regulation that's reactive is not going to achieve that. So I think we need a new tech culture as well as societal norms and priorities that says there is an alternative that is technically feasible and socially desirable for technology, especially for AI. Articulate what this is. Let's have a conversation about how we can get there. What we can do to encourage researchers, what we can do to encourage engineers,

what we can do to encourage businesses to actually go in that direction. What does the government need to do? What does the government need to do? What does the media need to? By the way, I think media is a big part of the problem. Media often sort of increases the appeal of the tech industry. It sort of paints a picture of tech leader. as these geniuses who are revolutionizing things,

and it personalizes their power, and it makes it harder for the public to keep the tech sector accountable. Also, on the AI field, I think the media is part of the reason why there is so much hype. Many of the leading publications, such as The Economist or the New York Times, every week print something about AI will solve this problem or that problem. going to revolutionize. And it's always will solve it. Yes, we'll solve it. Yes, it hasn't solved anything yet. Yeah. Yeah. That's, I mean, part of the reason the show exists. And I think it comes down to, I do blame a lot of this on the growth at all cost economy, but it's also, it's almost like there

is no long-termism anymore in a lot of the tech economy. It's all, this will happen, just trust us, and give us as much time and money as possible, but we're not going to invest in R&D. It's just a bizarre. Well, look, let's also think about the, world at large. There are 6 billion people who live outside of Europe, US, Canada and China. That includes the weakest, the poorest people in the world. How can we improve their lives? Nothing we're talking about AI here is going to do that. And that's actually the thing. It's connecting back to what you were saying earlier. The problems being solved don't feel like they're solving for everyone. It's solving what's very much in front of us. The latest iPhone, latest computer,

What problems can that solve? And thus, Generative AI kind of makes sense because it's like, oh, more computer. But more computer isn't fixing anything. Metaverse is a solution to people who are starving. Actually, this leads me to a question. What did you think of cryptocurrency? I wish I would have had this podcast and asked you about this at the time. Well, I said that I see the positive for generative AI.

I think it's actually a promising technology. I do not see any positive for cryptocurrency. I never did. when I read the manifesto first about Bitcoin, it was interesting, it was thought provoking, but two days later, I was inoculated against it. Yeah, well, you kind of remembered real money exists and at that point. We cannot trust the government, yes, we cannot trust politicians, yes. But as long as we keep politicians and the government under some sort of check with through democratic means,

you know, the money is not the most important problem. So that's not the biggest issue that we have to worry about. So a wrap-up question. I really appreciate your time. Of course. Are you optimistic about the future for the tech industry? No. I am not a techno-optimist, and I'm not a market optimist,

meaning that if I define optimism as things are going to work out, there is an arc of progress. I am not an optimist. I think we have serious problems with the tech industry. We have serious problems with the market. process in the United States right now with social processes. But I'm hopeful. I believe that there is a direction in which we could use technology that would make things better. And there is a way in which we can introduce better regulation, better worker organizations, better training that would make

the market system work better. But that's the hope that we could achieve that if we did the right things. But I don't think that we are heading there left to our own devices. So where does it head if we're heading in that direction. Oh, I prefer not to answer that question. That's a perfectly fine way to end it. Theron, thank you so much for joining me today. Thank you, Ed. This was really excellent conversation.

I really enjoyed it, and I'm sorry that my voice was a bit of a downer. Oh, don't worry. The listeners have just be glad to hear someone else other than me talking. You've been listening to Better Offline. Thank you for listening, everyone. Thank you for listening to Better Offline. The editor and composer of the Better Offline theme song is Matt Rosowski. You can check out more of his music and audio projects at Matersowski.com.

M-A-T-T-O-S-O-S-K-I.com. You can email me at E-Z at Better Offline.com or visit Better Offline.com to find more podcast links and, of course, my newsletter. I also really recommend you go to chat. Where's Your Ed.at to visit the Discord and go to R-S-Better-O-L-Line to check out our Reddit. Thank you so much for listening. Better Offline is a production of Cool Zone Media. Coolzone Media, visit our website, Coolzonemedia.com, or check us out on the IHeartRadio app,

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