Do you think that discussion of a bubble

or the possibility of there being a

bubble is the wrong discussion? Maybe

there are there is something more

important, more significant that you

think people should be talking about

instead.

>> I think it's the wrong discussion. I

don't like the word bubble. Were

automobiles a bubble in the 1920s?

Again, a lot of the companies failed.

They were not the best companies. Could

you imagine companies whether AI or not

today failing because of Middle Eastern

war, war with Russia, mistakes from the

Fed, halfozen other reasons? Of course

you can. So things can fail. It doesn't

mean they were bubbles to begin with. A

bubble to begin with is something like

the South Sea bubble or the Dutch tulip

bulbs that just made no sense. This is

not that. I think the key question is

just how much will society accept the

changes coming from AI.

>> Today's number 40. That's the percentage

of Americans who think listening to

audio books does not count as reading.

Ed true story. I recently had a book

fall on my head, but you know, I have no

one to blame but my shelf.

>> We're back. We're back, baby.

Tell me everything about your vacation.

>> Uh, it was I I

>> I'm not interested.

>> I started

jump to the punch line too quickly. You

got to give it a second. Let me get

going.

>> Go ahead. What did you do? I am sort of

interested. What did you do? Where'd you

I was in Munich or actually just outside

of Munich in Amadingan uh for a friend's

wedding which was incredible in Bavaria.

Uh then I drove I rented a car with my

girlfriend, drove down the autob barn

into Kitsule in Austria. Spent a week in

Kitsb hiking, chilling, going to the

spa. It was probably I think it was the

best vacation uh of my life. I've been

sort of pondering on it, but I think I

think it's my number one.

>> Wow.

>> Uh and then I spent the weekend in

London and I decided, you know what? I

need to see the opening match of the

Premier League. So, I went to the

Chelsea game and sat in the front row

and watched Chelsea beat Fulham. So, I'm

feeling very good. I miss it. I mean, I

love this podcast. I love doing this

with you, but I I I

could have maybe taken a few more weeks

off, but I'm feeling very good. I feel

ready. Ready for the year. Oh, that's

great. Yeah, you sound you sound

energized.

>> How about you?

>> Yeah, August was good. I dropped my

kid off at school. Nothing screams

confident masculinity like crying in a

your car when your son walks out of Best

Buy with his own mini fridge. Um

but uh yeah, it's um yeah, it's that was

the big deal was dropping my kid off at

school. What are your takeaways having

dropped your first son off at college?

Well, the way you summarize it is your

life gets smaller so theirs can get

bigger and it's just um you you you're a

tide pool of emotions because everything

just sort of hits you all at once and

there was all these things you were

going to do that you didn't get a chance

to do. I had all these you know we did a

lot. I think I was more present than

most dads but you know I had thought oh

we I got to take my son to Alaska. I

want to buy a car and restore with him

and I want to take him to, you know,

Latin America and I wanted him to come

on tour with me uh on one of my speaking

gig things. And all you think about is

all the me cuz I'm a kind of a

glass half empty kind of guy, but all

you think about is the you were

supposed to do that you didn't. But

um he makes it a little bit easier not

to be sad because I think of myself as

this spiritual loving guy and he's

literally like I I got this dad and

shoving me out of the room after about 7

minutes. And also I mean quite frankly I

didn't want to make it about me so I

thought I keep it together that like

your 18-year-old does not need the

emotional baggage of his father like

singing Cats in the Cradle over and over

in his head. Um, so yeah, I tried to I

held it together. He'd be proud of me. I

didn't cry and we just fixed up his dorm

room and we thread the needle between a

comfortable nice dorm room and one of

these ridiculous real housewives of Palm

Beach things where they turn it into the

Brett's Carlton Charlottesville.

So we went to Target. I'm like, I'm not

going to buy anything nice. You can get

anything you want, but it's coming from

Target. And then the moment I lost it

was actually after we dropped him and I

was back at the hotel and I was sitting

there and I noticed this car stop at the

dorm or the business school, the law

schools next to where we were staying

and this mom got out on the driver's

side and then a kid got out of the back

seat and then the dad got out of the

passenger seat and then they hugged,

they embraced and the dad immediately

had to walk away and he started crying

and I realized it was their own drop off

and then I just lost my So,

whoever that dad was losing it on the

sidewalk kind of did my like express my

emotions for me. Are you surprised by

the significance of dropping the kid off

at college? Like I know people talk

about it and I know it's like you know

empty nest what is it syndrome? Empty

nest whatever the feeling is called. I

know it's a thing, but I I wonder if

it's more of a thing than you expected.

>> First off, I think I think it's it's

difficult and a big moment for a lot of

people. And it's just so different now.

My drop off was my mom gave me like my

mom gave me an iron, a used iron, and

said, "Here, you're going to need this."

That was my big drop off was she left an

iron on the kitchen table for me to take

to college. That was the emotional drop

off. There was my drop off in 19, you

know, '92, 82. Uh, this is a much bigger

deal. You know, drop off is a much

bigger deal now. For me, I think I

Well, it just marks a different point in

your life where your kids are no longer

at home. And the the thing I'm wrestling

with a little bit on an existential

level is I've always described my

purpose as raising, you know, preparing

my my sons for others. And it's been a

nice source of purpose for me. And now

you kind of worry like, okay, am I going

to have a purpose moving forward? So, it

is it marks time. It's like basically

now really all I have to look forward to

is the ass cancer. Ed,

>> don't lie. You've been looking forward

to that for years.

Yeah, I've been talking about a lot.

Look, it's a it's a you'll see it's it's

it's impossible to explain until it

actually happens to you. But I tried to

hold it together such that again as as I

I didn't want to do what I always do and

that's turn it turn it to me and he

seems happy. I speak to my boys every

day which makes things easier for me. So

I talk to him about his classes and

what's going on.

>> Oh, that's good. And also it's just it's

a great everything that I'd hope for in

terms of UVA is what it's out of central

casting. You know the this campus is

great. The kids seem really smart and

nice and you know he's having a great

time and so that makes it easier. So

we'll see. We'll see.

>> Sounds like you're not sure what you

make of it yet.

>> I'm an emotional tidepool. I don't know.

I don't know how to process it all is

the bottom line.

>> I'm like what are your takeaways?

Yeah, I know.

>> Process things now.

>> Yeah. No, I don't I don't I don't have

>> Well, we'll check in on it for sure. I

appreciate that. Yeah,

>> it's an interesting time. Well, now that

we got the life advice or life

reflections out of the way, we have a

very, very interesting discussion with

someone who we've want to have on the

show for a while now. So, don't miss it.

We've been away on break for the past

two weeks and in that time there have

been a ton of developments in the world

of AI. One of the biggest was the

hacking of hugging face by rogue agents

from open AI. But beyond that breaking

news, there are still some lingering

questions about AI that are keeping the

market on edge. For example, are we in a

bubble? How will AI reshape the job

market? and is the massive spending that

we're seeing from these companies

actually sustainable? So, to help us

make sense of it all, we are turning to

someone who a lot of the other experts

we've had on this show often listen to.

He has consistently been named one of

the most influential economists and

thinkers in the world. And he has been

described as quote the man who wants to

know everything. So here is our

conversation with Tyler Cowan,

economist, author, podcaster, and chair

of the Marta Center at George Mason

University. Tyler, uh, great to be

joined by you today. Uh, very excited to

get into this conversation. I'd love to

start with some questions about the AI

bubble, whether or not we are in one.

And I would especially love to start

with uh a clip from a an interview that

went viral recently. This was from the

Diary of a CEO's interview with uh Ed

Zitron, who has become famously one of

AI's biggest critics. Um I'm going to

play you what he said about AI and I

want to get your reactions to start this

off.

>> I think generative AI is at its heart

con. I don't think it is sold as honest

software. I think that they overstate

both what it can do, what it will do,

and the underlying financials to the

point that they are misleading the

entire world. And they're actively

exploiting the weaknesses in journalism,

in our economies, and indeed within the

responsible parties with sellside

analysts, governments, and all over the

shop.

>> The word con is a strong word.

>> Yeah. I mean what do you call something

where from the very beginning they've

sold it in the terms of magic as this

thing that will replace all jobs that

will cure cancer as all of these things

and when you look at it it's boring

cloud software that's extremely

expensive and unprofitable and also

unreliable at its core.

>> You are a worldrenowned economist.

You've written uh a lot about AI. You

also uh serve on anthropics economic

advisory council. So you think about

this stuff a lot. Um, what do you make

of those comments? Do you agree with

them?

>> AI is like magic in many ways. There are

many, many tasks where it does better

than humans. It doesn't mean it will

take away your job because your job

involves the physical world as well in

dealing with people. But for

intellectual tasks, it's a truly

remarkable achievement, one of the top

in the history of mankind. There's a

tweet circulating on Twitter about all

of Ed Citroen's wrong predictions so

far. Open AAI just hit a billion dollars

of revenue from ads. The revenue to date

for anthropic and open AI has been

incredible. There's also Grock, Meta,

other companies, the Chinese waiting in

the wings. I'm not saying every company

will make it. There were plenty of car

companies in the 1920s. They're not

mostly around today, but cars are a big

big thing and AI is too. When you think

about this idea of the circularity of

the AI ecosystem,

this idea and this is something that

Zitran has talked about um that you have

a lot of these companies, these big tech

companies that are investing in

anthropic and open AI and then open AI

and anthropic and then turning around

and spending those dollars uh on compute

that is sold to them by basically their

investors. Um and the fact that you know

open anthropic have made up such a

significant portion of these big tech

companies AI revenue for example

Microsoft 70% of their AI revenue last

year came from open AI does that element

of it concern you not the technology but

the way that the technology is uh being

sold right now

>> new things bootstrap themselves all the

time you can think of Nvidia as a kind

of lender or buyer of last resort for

the sector. You could say the same about

Microsoft, arguably Google, maybe Meta

as well. There's a lot of capital in the

sector that increases its long run

chances of making it. Again, the point

is not that every single company will

prosper, but the stuff works. There's no

reason to be skeptical, per se, about

the economic future of AI. If one of

those companies were to fail, because

you're saying, you know, maybe these

companies won't all make it out alive.

Is that not quite a significant

statement if if it's not

a certainty that some of these AI labs

wouldn't make it uh out of this or that

they wouldn't prosper or succeed at the

valuations that we're seeing? Looking at

how systemic they have become to our

economy,

is that not something that worries you?

>> It's a super competitive sector. You

could say in a way we should hope they

don't all make it. That some of them

have much better products than the

others. Are there economic costs to

companies going out of business? Of

course, the companies themselves are not

very heavily financed by debt. You could

say there's other parts of the supply

chain, data centers and the like, or

people investing in those that are

financed by debt that could have some

bad macro consequences. But again, every

new technology we've had, including the

internet, including cars, including

railroads, there are ups and downs to

the cycle. Not every company makes it.

the really good stuff basically works

and it sticks around with us forever

like the railroads do. Do I worry about

day-to-day volatility? Of course, but

keep it in perspective, right? Every

sector has had this. Uh you have to ask

yourself, does the product work? And the

answer here is a very clear yes.

>> It says we saw the dot implosion again.

Um going with your analogy like you know

there's value here and there will be ups

and downs. Do you think that that is a

scenario that is

probable, possible.

Um, do you think that that is something

that is should be uh talked about?

>> It's possible, but there are big

differences. So, revenue growth for the

current AI companies looks much better

than what we saw before the dotcom

bubble burst, right? The degree of

capitalization in the sector is much

better and much stronger. Just our

confidence in the technology. So, a lot

of things are possible. Again,

volatility would not in the slightest

surprise me. It's been a historical

regularity. Uh, Pets.com went under, but

you can buy pet food online all day long

if you want, and that's the world we're

headed for with AI.

>> Do you think that discussion of a bubble

or the possibility of there being a

bubble is the wrong discussion? Do you

think that maybe there are there is

something more important, more

significant that you think we that

people should be talking about instead?

I think it's the wrong discussion. I

don't like the word bubble. You know,

were automobiles a bubble in the 1920s?

Again, a lot of the companies failed.

They were not the best companies. Could

you imagine companies, whether AI or

not, today failing because of Middle

Eastern war, war with Russia, mistakes

from the Fed, half dozen other reasons?

Of course, you can. So, things can fail.

It doesn't mean they were bubbles to

begin with. A bubble to begin with is

something like the South Sea bubble or

the Dutch tulip bulbs that just made no

sense. This is not that. I think the key

question is just how much will society

accept the changes coming from AI. That

is indeed a very open question. We might

decide to stop or halt or slow down

those changes. And there I think we

should be very agnostic.

>> I'll put forward a thesis and you tell

me where you think we have a right or

wrong. You mentioned the automobile

market. It feels to me that an apt

analogy would be that the frontier

models are German automobile

manufacturers. higher price, prestige,

better technology, larger margins, and

that the openweight Chinese models are

more like the Korean or the Japanese

auto market that end up putting more

cars or AI in the hands of of users

around the world. Would you do you feel

that's an accurate description? Do you

feel that the market is kind of

bifurcating?

>> Open- source models make frontier models

easier to use. You use frontier models

for the frontier tasks and you use open-

source models for simpler tasks. So it

doesn't have to be either or. Uh right

now the best proprietary models are

better for tough tasks. That makes a big

difference using Fable 5. You can do

many things that you cannot do with the

Chinese open-source models. I think

China also is more likely to get scared

of its own AI than America is. So

there's no guarantee progress on the

Chinese front will continue. So again,

there's a lot of competition, but the

idea that American business is just

going to wholescale rush to Chinese

models and abandon the best American

models, I don't expect that. So looking

at the market dynamics or I've read that

2 and a.5 trillion in capex so far about

revenues of 150 billion and in all the

technologies we've talked about

railroads the internet the grid highways

the technology often times survives

evaluations this just feels eerily

reminiscent of all these other

innovations where you get above a

certain level of GDP spend on capex and

you have a pretty serious correction

regardless of the viability or the

importance of the technology doesn't I

mean you're an economist you look at

economic cycles this feels eerily

reminiscent of those different

innovations where the technology

survived the valuations again a

correction wouldn't surprise me but keep

in mind this technology has advanced

much more quickly than the others were

in a much wealthier world debt plays a

much less significant role in this

sector there's massive capitalization in

the sector

due to the major tech companies who

would love to be able to buy up a great

proprietary model if it came to that. So

in all those ways, this is not like for

instance the railroads. But again, I

absolutely expect big ups and downs. No

one should be surprised by that. As you

point out, that's the norm in history.

We'll be right back after the break. And

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>> We're back with Profy Markets. Let's

talk a little bit about the labor

markets and that is the kind of

idiocracy scenario where these tools

result in such an incredible increase in

productivity that we can afford to just

pay everyone to stay home and their jobs

go away. When I look at the labor

market, what I see is a market where you

wouldn't know AI existed if you didn't

know it existed. I don't I challenge

anyone to discern

where this chaos in the labor market is

supposedly manifesting. curious to get

your predictions or sense for the

intersection between AI and the labor

market and where the the market appears

to be getting it right or wrong about

this somewhat of a catastrophizing

around the labor markets.

>> I agree with what you just said. I think

in programming it's quite noticeable,

but there's some very recent papers, one

by John Hartley, and you just don't see

it in the numbers. Some modest amount of

jobs might be going away because of AI.

Some modest amount of jobs might be

created because of AI. Those two numbers

appear to roughly balance. AI will

spread over time a lot more slowly than

AI advocates often seem to think and I

think labor markets will be pretty

stable. The only thing you said that

seemed unusual to me or I would maybe

I wonder everyone's talking about kind

of a a supply crisis or that we don't

have the infrastructure or the supply

chain to support the increase in demand

and it looks to me as if on the front

end several players that were

anticipating more demand whether it's

Meta or X have immediately pivoted their

infrastructure where they're now leasing

out their supply because they haven't

been able to create the demand they had

initially anticipated. Do you think

there's a a chance that we might go from

what is anticipated being a supply

crisis to a front-end demand crisis

where there just a small number of

players creating front-end demand?

>> There's some data that have come out

from the two main companies on how many

tokens people are using per month and

that number has just been going crazy

through the roof.

>> So, I don't think there'll be a demand

crisis. At some point, there may be an

energy sector crisis. Right now, the US

has a huge share of all the world's

compute. There's no guarantee we keep

that position. So, to build out compute,

secure the supply of chips largely

through Taiwan, make sure that over time

we increase our own energy and number of

data centers against strong political

opposition. Those are big challenges. I

think we'll squeak by on all those

fronts, but again, you could definitely

see things going wrong.

All you would need is one decision from

the Chinese Communist Party and to

invade Taiwan, we'd be living in a very

different world, right?

>> On the demand for tokens, which is true,

I mean the to the the demand is is going

up significantly. Uh, one of the

criticisms or at least the concerns

though is that that token usage or that

token demand is currently being

subsidized by the AI AI labs. I mean

Anthropic, OpenAI, they are losing money

on every prompt that a user uh puts in

to the system. And so I think there is a

concern that if we were to not subsidize

this, if Silicon Valley, if VCs, if big

tech uh were not to basically support

the business models of OpenAI and

anthropic, then maybe it would be

different. maybe the the cost of tokens

uh of token usage would be higher and

people would be less inclined to use as

many tokens as they're using today. Um

what do you make of of those concerns?

Do you think that they're valid

>> in the short run? The price may well

need to go up for the reasons you

mentioned and we already see what is

possibly some rationing of compute. But

that said, if you look at data, how much

has the price of tokens fallen since,

say, GBT4? I forget the number, but it's

more than 100x. So, we're doing very

well on making the systems more

efficient. And we'll see, you know,

which curve outraes which other curve,

but it's not that there's no progress in

making the systems more efficient.

There's been incredible progress. But in

the short run, should the price go up?

Probably. But aren't costs going higher

for these companies? I mean, but my

understanding is that it's I mean, it's

hard to know because they're not public

companies. We can't look at their

audited financials, but my understanding

is that anthropic and open AI are

spending more uh each year.

>> Better model costs more. Yeah.

>> Right. Which would assume I mean to me

that means that we're not necessarily

going in the right direction in terms of

making this a an a profitable business

that is necessarily sustainable. To me,

it seems like we're technically going in

the wrong direction if we're talking

about profitability, which is we're

losing more money.

>> Well, I I'm not advising anyone to buy

any particular asset. But the worst case

scenario is that capital gives a massive

subsidy to consumers and we end up still

having the model and someone else buys

it. That's a great outcome for an

egalitarian say. I don't think that will

happen. I think the companies will do

fine. There's a reason why people talk

about anthropic at two trillion. I'm not

sure what the current number is for Open

AI, but I think it's over a trillion.

Uh, those are guesses, but those are

smart people with real money on the

line, and they're saying the companies

are worth trillions. On average, we

should believe them.

>> Why should we believe them in your view?

>> Because it's their own money on the

line. Once things go public, you'll have

the chance to short them, right? Uh,

you're free to do that. I'm free to do

that. I have no plan to do that

whatsoever. The way you really make

money in markets is to go long. I

believe in America. I believe in tech. I

think artificial intelligence works.

Again, I have no favorite horse in terms

of which particular company and I

definitely think they're not all going

to make it. But again, some of the big

ones really will. I guess just from the

economics perspective, you know,

regardless of whether someone wants to

go long or short because of how

dependent the US economy seems to have

become on AI or at least the AI

buildout, the amount that AI is that S&P

earnings growth is dependent on AI, uh

the amount that the entire stock market

is increasingly dependent on AI and and

the extent to which the ecosystem itself

does depend on those two companies does

that not make it bigger than

you know some will win some will lose

isn't it does I mean aren't we all

implicated whether we're long or short

or not well for one thing I don't think

the US economy is as dependent on AI as

those numbers indicate as you said

yourself it hasn't affected that many

jobs so there's a lot of money flows but

if somehow AI did not magically exist

the transformers paper had never been

written that money would flow somewhere

else and you would still have a lot of

GDP from some other set of activities.

So we're investing more in AI and less

in other places. That's a gamble of

course. Uh but it's wrong to think that

AI is currently this massive net

contribution to US GDP and that we would

have nothing else if it weren't there.

So in that sense we're pretty robust.

Now there's a transition issue. People

are expecting AI to do well. If that all

turned out to be horribly wrong, there'd

be a lot of disappointment, big capital

losses. Some of those losers have taken

out a lot of debt. There'd be solveny

issues. That'd be a big mess, right? But

as messes go, I don't even think it

would be close to the worst we've seen.

Not close, say, to 2008. What is your

biggest concern with AI then? I I mean

I'd be interested to hear what you're

optimistic about, but also, you know, if

it's if it's not a market event, some

sort of crash, some sort of correction,

that seems to be what a lot of people

are concerned about with AI right now.

What is it for you? What do you worry

about? What should people be talking

about more?

>> I think we see this already and it's how

disoriented people feel. The notion that

you cannot say to your kid or grandkid,

here's what you should do for a living.

Here's how you prepare for it. Here's a

more or less guaranteed path to success

if you're smart and you work hard. I've

grown up with that my whole life. People

like those asurances. I don't think they

exist in the same way they used to.

There could be someone else equipped

with AI or an AI equipped firm that

could out compete you. And who really

can be a consulting partner or a lawyer

or do the right thing in medicine and

you know excel at an Ivy League school

and walk into a job where they end up

earning $2 million a year and living in

Manhattan in a nice apartment. I think

those paths are now up for grabs. I

think there's a lot more opportunity for

the world as a whole, but there's a big

status and somewhat income disruption

for what is a favored class of people

and they don't know how to deal with it.

What they do is they keep on running

opeds in the New York Times about how

terrible this is. But they're not going

to stop it. At the very least, there's

Chinese open source. And I think so many

parts of human life, whether it's

entertainment or religion or just your

own conception of your intelligence,

it's going to change. And how we deal

with that, it's up to us. But

historically, we're not always good at

dealing with radical change. Do you

think that that could be potentially a

good thing to have a shakeup in the way

that you're describing?

>> Yes, but again, people don't like it and

the mere fact that people don't like it

is discomfort and that's a bad thing.

Then you have to ask, what will the

politics of this be? I don't have any

specific predictions. I just could see

it getting ugly and restrictionist and

polarizing. That would hardly be a big

surprise.

So again, you already see this with the

data centers. So I have big concerns.

>> Yeah. Trump recently put out a tweet on

data centers. I don't have the quote

right here in front of me, but he

basically said that if you try to stop

data centers, talking about this data

center backlash that we're seeing that's

becoming very very uh politically

popular in America right now, then

you're getting in your own way. That's a

recipe to become poorer, that we should

be pro- data centers. What do you make

of his comments and what do you make of

the politicization of AI and data

centers in America right now?

>> Well, it's one of these small number of

issues where I completely agree with

Trump. So, while I'm glad he's saying

it, I worry that Trump embracing the

cause does not in every way help it.

>> Fortunately, America has 50 states and I

think you'll always find at least five

governors willing to cut a deal. And a

lot of these governors seem to say very

anti anti-data center things and then

they go ahead and they still want the

deals. What they're saying or announcing

is not really binding. Like Josh Shapiro

in Pennsylvania, West Virginia is

welcoming data centers. There's a place

in southern Ohio. I think it was written

up in the New York Times today. So I

think it will happen, but it will be

very costly and there'll be lots of

bargaining and lots of politics. But

again, that's part of the beauty of

federalism. There are indeed 50 states

and other countries that are

federalistic, you know, Germany, Brazil,

uh they don't have close to 50 states.

It's a big advantage for America right

now.

>> Do you think that it's unreasonable to

be anti- data center? Do you think there

are merits to the arguments that

building data centers is a bad thing or

not at all?

>> I live in Northern Virginia right next

to Lowden County, which is ground zero

for data centers for the entire world.

It's the wealthiest county per capita in

the whole United States. The data

centers pay, I think, half of the

property taxes. There's no actual

problem. The cost of power, electricity

there, it's about at national averages.

It's actually slightly better. So, I'm

reluctant to say there are no valid

concerns. Oh, maybe you think they're

ugly or there's some slight humming

noise or but man, they don't create a

lot of traffic. They pay the bills. They

make your place wealthy. We've been

wanting re-industrialization for a long

time. Labor unions typically support

them. I say let's go ahead and do this.

What would the message do you think the

message should be uh to Americans? What

should if you were trying to make an

argument and trying to convince people

as to why data centers are ultimately a

good thing? Um how would you change the

messaging right now? Because clearly

it's not working for most people. I

don't think any messaging is working. I

think people don't trust their own

elites for reasons like COVID in 2008.

That's understandable. You can't

overturn those perceptions. Uh maybe

just talking about it less and having it

happen in a few places and stop trying

to persuade everyone. Some issues the

more you talk about it, you know, the

bigger the deeper in you dig yourself.

>> So you could try bribing citizens again

with 50 states. Let's try that in one or

two places. But sometimes that makes it

worse. the people say, "Hey, if this is

so great, why do you need to bribe me?"

But you could try it. I think some

states are trying that.

>> I think Meta is trying it. I think

they're paying out local communities to

get them on board. Reminds me of my

favorite movie, There Will Be Blood. Um,

I will pass it back to Scott. There's

two trains of thought and one is that a

small number of people and investors who

either own these assets or have the

ability to leverage AI to the advantage

of their enterprise are going to

aggregate a disproportionate amount of

the spoils resulting in greater income

inequality.

And then another line of thinking which

it feels like

I is incumbent in some of your comments

that this will attack the incumbents

and and be good or actually be a bit of

an equalizer for other less qualified or

less traditionally certified uh

professions. Do you come out on either

side of the spectrum there about what

you anticipate happening? I think the

biggest losers will be parts of the

upper upper middle class as I call them.

Now I love the upper upper middle class.

I'm a part of it. So it's the

professionals who do intellectual work

and those people are not going to

starve. They may have much lower status.

They may earn much less. Maybe they

can't cluster in Manhattan or San

Francisco. Uh by their own standards

their lives might be worse. I think big

winners will be teenagers, very small

companies, people who master AI, a lot

of immigrants, people from unusual

places like Eastern Europe or Turkey who

were never so bought into the old ways

of doing things and decide, hey, I can

get ahead by starting a company, two or

three humans and a bunch of AI agents,

and they make it work. Those people will

be very wealthy. They'll have to work

incredibly hard, but they're going to

challenge people across the board. So

there's pluses and minuses to all of

that, but there will be amazing

opportunities. But the people who now

have influence in America, I could call

them your listeners, will hate it on

that

>> incumbents. You said something I want to

double click on. Teenagers.

>> I uh direct a philanthropic fund and I

see many applications from teenagers,

often as young as 15, who are starting

companies with AI agents. Whether those

companies succeed this time around, I'm

not sure. But they are learning

incredible amounts. They are learning

things you cannot learn at Harvard or

Princeton. And I think they'll be the

wealthy people and the successful people

of the future. Teenagers. Yes.

They have no stake in the established

order. And they're learning these things

from scratch. And they just do it by

experimentation. Again, there's no one

to teach them to some extent. They teach

each other. I think we take for granted

that every

technological innovation or disruption

results in a small number of companies

that are able to capture trillions of

dollars in shareholder value. But

there's also been industries where the

the technological or the technical

uh results have been extraordinary. I

think of jet transportation, vaccines,

the PC where I don't think you I think

you could argue that they weren't able

whatever it was distribution or capital

weren't able to sequester shareholder

value to a small number of companies

that the big winner was us if you will.

I'm sitting here in LA. I think the

biggest the biggest the most accreative

technology of my life is jet

transportation and yet I think on

average in aggregate airlines and jet

manufacturers are just barely a break

even year uh uh to date. Do you think

it's possible that that the winners

might be all of us but we in fact

overstate the industry's ability to

capture shareholder value for a small

number of companies?

>> I think it's likely. I mean, it's funny

to me the same people who say it's all a

bubble turn around and five minutes

later, you know, want to say, "Oh,

income inequality will go up massively

because the companies will learn so

much." Truly fundamental technologies

like the printing press, fire, language,

they tend to be enjoyed by everyone, at

least over time. So, there's a lot of

medications. They're expensive at first,

then they become cheaper. I think that's

what we'll see with AI that eventually

through energy innovation will get token

costs down and it will be pretty cheap

and the people who benefit the most

might be people in Africa who right now

don't have access to quality services of

legal advice healthc care diagnosis and

so on and they'll be getting it very

soon or some are starting to get it

already they could be the very biggest

winners

>> you mentioned education I think a lot

about higher ed and I would argue that

higher ed has never been more important

and at the same I'm I agree with you

that there's an opportunity for younger

people to sort of skip the certification

line and start a company on little or no

capital that would have previously just

been not possible. Do you when you look

at higher education

um I see applications going up. I see in

my view college and critical thinking

becoming more important and then a lot

of people think that higher education is

going to be massively disrupted about by

AI. What are your thoughts on AI as it

relates to higher education?

>> I'm in higher education. I see schools

and universities that do that that are

doing very little or nothing to adjust

to the new reality. They just complain

about students cheating. They don't

rethink that they need to be teaching

very different things. On average, the

students often know more about AI agents

than their professors do. So what are

the professors supposed to teach? I

think it's a huge mess. I agree with

your view that education has never been

more important. But the role of actually

existing institutions in that is highly

uncertain. In the short run, they'll

become more and more about networking or

golf courses or marriage markets or

dating. That's fine in fact, but radical

changes are needed. And so far, I really

do not see those coming.

>> We'll be right back. And for even more

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>> We're back with Profy Markets.

>> What one or two industries do you think

will undergo the greatest shift both to

the upside and the downside from from

the penetration of AI?

>> Well, programming clearly has been

accelerated the most, right? There's a

lot of evidence for that. It's not a

hypothetical.

And I don't think humans will disappear

from programming, but they've already

taken on a fundamentally different role.

They're more like imprearios

and they're consulted in the meantime

like, oh, is this going in the proper

loop? Is the work actually being done?

Is this the thing I asked it to do? Over

time, more and more of that will be AIS

themselves monitoring. Uh, but that's

the clearest example of a very positive

change. Uh, the biggest negative I just

think will be cyber security. There'll

be a lot more hacks. There's plenty of

evidence for this already. Those cost

the world a lot. We'll spend more on

cyber security. Uh it won't be fixed

quickly and I think it's a very real

concern. We need a national

international effort to really firm up

all of our major institutions as quickly

as possible. But there's so many

institutions and relatively speaking so

little expertise. It's going to be a

very tough slog. It feels like we've

always been on the precipice of

this huge era of innovation in

healthcare that we keep getting seduced

by this age of discovery where we're

going to see an acceleration in

pharmaceutical innovation treatments.

Have you thought about AI's improvement

of healthc care outcomes? Do you think

it's overhyped, underhyped? What are

your thoughts?

>> I think about this a lot. In my view,

it's underhyped. I would make the point,

you know, the phrase AI, we think we

know what we mean, but in a number of

contexts, it's not that well defined. If

we just call it computational biology,

it already gave us the mRNA vaccine

against COVID in two days. That was an

amazing breakthrough that probably saved

millions of lives. So AI broadly

construed, I think over the next 40

years, we'll beat back many of the

things that kill people. At least I

think we'll live to 100. Scott, whether

you and I do, I'm less certain. This

anthropic notion that it will all come

in a few years time I think is badly

off. There's just a lot of testing and

also regulation and trials and

procedures that we both need to go

through, but at the very least we have

to go through. So for me, it's more like

a 20 to 40year project. But there's

already significant progress against say

pancreatic cancer. That too came from

computational biology. It's not from

Claude or OpenAI, but it's happening.

People don't really fully grasp this.

So, Ed, please save accordingly. You may

live to 100 and don't buy a motorcycle.

>> I want to talk about what what I'm

worried is one of the really big

downsides that doesn't get much

attention, and that is loneliness. And

that is some of the deepest pocketed,

most talented companies are using AI to

further sequester people, especially

young men, from their relationships and

their kind of offline lives. And that

we're going to end up with perfect

gaming, perfect entertainment, perfect

faximile of some sort of sexual

experience with porn.

And that the real the real downside or

the danger of AI is going to be uh

loneliness. And I read that 20 to 30

year old males are spending less time

outdoors in prison inmates. Do you worry

that we're evolving a new potentially a

new species of asocial

asexual youth?

>> I think we already had a loneliness

problem. We already had what you could

call a sex problem, a sex draw. Uh I

think our culture will adjust. People

don't want to be lonely. If you go to

Mexico, where I just was, the amount of

time people spend outside with each

other, it's much higher than in the

United States. We need to be more like

Mexico. Eventually, we'll get there. The

AI economic dividend will help pay for

that. But man, we actually have to do

it, right? It doesn't happen

automatically. So, do more things with

people. Coach little league or have

groups of people, you know, go on

picnics, whatever it has to be. date

more, ask women out more, whatever it

takes. We need a significant cultural

change very soon.

>> Tyler, if you were president or emperor

of America, if you had all the power,

um, what are some economic policies that

you would want to get done in America?

What are some of the problems that you

would want to address and how would you

like to address them?

>> Well, our current administration is

doing many things to make high-skilled

immigration much harder. I would do many

things to make it easier. Uh that is by

far the number one change I would make.

I think economists agree about that on

more or less a bipartisan basis.

We have potentially a fiscal crisis in

this country. My hope is that AI spurred

economic growth will get us out of it.

But the problem is assuming AI does very

well, take the most positive scenario as

it throws off these economic dividends,

politicians will spend those also.

They're just not responsible. So I don't

know how to get our government on a

responsible fiscal path. And even me as

dictator,

maybe as dictator I could do it, but I

don't see a feasible path from here to

there, you know, with either party or a

third party or anyway, the voters love

debt and deficits because it means they

consume a lot and pay lower taxes. It's

a big problem.

>> Do you think there's any way to solve

it? Um, is there any way that we would

ever get spending under control or is it

just pretty much a lost cause at this

point?

>> Well, we'll inflate away some of the

debt. I don't like that solution, but it

is partially effective in a funny

counterproductive sort of way. And then

my hope is politicians are asleep on the

AI dividend that it comes pulls us out

of our debt and deficits as it did in

the mid1 1990s by the way. and uh

politicians just aren't efficient enough

to be merrily spending it along the way

that it's a surprise to them. I think

it's quite possible that happens.

Certainly nothing close to guarantees,

but that's the most optimistic scenario.

>> Where does the US debt and US deficit

sit in terms of your concerns about US

the US economy and America's future?

Like how how far up the list does it

rank for you in terms of your largest

concerns? Well, it's in the top tier.

So, our debt is now about $40 trillion.

I understand our productive capacity is

very very high. We can carry that

amount, but at some point you have to

start paying parts of it back and we

just got keep on increasing the

percentage of our GDP or government

spending that goes to interest payments.

Real interest rates are much higher now

across the world. Our Fed is screwing up

somewhat.

We're in a very bad state. We've made

major mistakes. They were all own goals

not caused by say another major war for

the most part and we're going to suffer

for that. I sometimes say you know our

plan A is AI and we have no plan B.

>> Yeah. It often feels as though the AI

thing is sort of what a lot of our

leaders lean on as their I don't know

their bailout option. It's okay. We can

keep spending. we can keep continuing

down this seemingly very unsustainable

fiscal path because AI is going to help

us grow out of it. Um, but to your

point, I mean, it doesn't seem that

anyone is really taking this seriously

in Washington right now. What do you

make of the fact that Trump said as one

of his big policies, as one as part of

his platform that he would balance the

budget? He said it over and over again.

He seemed to convince a lot of people

that that was actually what he was going

to try to do. It was one of his uh

biggest points in his address to

Congress. Congress stands up and gives

them a round of applause and then

suddenly, yeah, we do get this news that

we've hit $40 trillion. Um what do you

make of that?

>> Well, it was all lies to begin with.

Anyone who believed it was a fool. For

one thing, we had a first term of Trump

right now. I don't blame him for CO.

That was unfortunate. But still there

was no effort made even before COVID to

address fiscal stability. And then Trump

had an earlier career as a businessman

where he was rampantly in debt and went

under a few times. So why expect fiscal

sanity from Trump or for that matter

from the Republicans or even the

Democrats today? Uh the real issue is

the voters want what we have and they

don't see there's a long run cost.

>> How would you grade the US economy right

now? uh given inflation, given

debt, but also given the fact that, you

know, GDP is growing, earnings are up,

AI is rolling on. Uh could you give it a

letter grade?

>> Overall, it's still pretty awesome, I

have to say. I know it sounds a little

crazy. Can I give it a B+? We're close

to full employment. We used to think

China would catch us in terms of

aggregate GDP. China's actually falling

behind. We've decisively pulled ahead of

Europe. Uh, we have problems. We're the

world leader in AI. We have by far the

best tech sector. We're shooting

ourselves in the foot 30 different ways.

Corporate earnings are great. Like you

said, stock market is more than fine. No

recession so far and it's full steam

ahead. That makes me nervous itself

because there are inevitably recessions

and corrections, but if you want a

grade, the grade is not a bad one. Are

you surprised by how long this things

have appeared to be I mean at least from

a market perspective how long the market

has been rallying uh how long it's been

since we've had a a serious recession.

>> Yes, I'm surprised I've lost a lot of

money. I should have been way more

heavily into equities. I was a fool.

Exante I don't feel it was a mistake but

expost I was way too worried.

>> What do you think was the cause of that?

Now, some of it is the prospects of AI,

but I just think there have been

fundamental transformations that favor

countries with scale. And the only

countries with real scale are the US and

China, maybe someday India. And that's

kept us going and been an extra uh kick

in the pants in a positive way. And our

tech sector has done great. And this is

still the number one place to go for

talented people. And there's this other

fundamental change in the global economy

that I had underestimated. And that is

how quickly the notion of I want to move

to the US and start a business spread.

It's always been a thing but it just

came to more parts of the world more

quickly than I would have thought. I

mean look at the number of people from

India who are either CEOs or done

startups that have just done great. How

quickly that spread again surprised me

in a very positive way. the high-skilled

uh immigration debate that you talk

about and Trump's it appeared that he

was interested in it and then kind of

went back on that and you said that you

would be a lot more welcoming. Um what

are the dynamics you think are driving

that? I think a lot of people believe

that it's largely racism. I think a lot

of people think that. Um but perhaps

also this idea that we don't want uh to

be recruiting people from other nations

to come in and and take jobs that should

be for Americans. Uh what do you make of

of sort of the political dynamics at

play there? I believe Trump outsourced

that policy to Steven Miller and that

Steven Miller genuinely believes that if

you push out all these foreigners,

what you might call nativeborn white

Americans will rise to the occasion and

do all the kinds of great things like

they did in the 1950s and60s.

And uh it will be good for this country

to go back somewhat to how we were

culturally, ethnically, linguistically

in terms of religion, Christianity.

uh I don't think you can get back to

that earlier world. I think the idea of

attracting more and more of the best

foreigners and that they in many ways

embody American values in the true sense

at least as well as our nativeorns do is

a more promising path forward. But look,

it's a disagreement and I just think uh

the Trumpers have very strange cultural

views without really much evidence

behind them and they've ended up being

very nasty to a lot of foreigners and

we're just we're really not getting

anything for it.

>> Do you think would it be a fair

characterization to say that you believe

that at least a significant part portion

of our economic policy has been driven

by

nivism

bordering on racism? our immigration

policy. Yes.

>> Does that concern you?

>> Well, it's my number one worry. It's the

number one thing I would change. So, I

think it's very bad. My fear is the

Democrats won't reverse it. I know they

say they will, but I'm not sure they

mean it. And immigration is often an

issue they would just rather not talk

about. So, lurking in the background is

this risk that it may be somewhat

permanent. If you imagine a world where

AI looking back in retrospect is

increasing productivity does not create

the types of the upside's much greater

than the downside. What do you think are

the biggest sources of friction from

here to there? Is it too much

regulation, too little? Is it uh

insufficient power grid? Is it uh cyber

security threats? You know, lack of

cooperation. What do you see as the

biggest obstacles to this kind of brave

new world of AI?

>> I think the biggest obstacle is just at

the institutional level, people really

don't know how to use it. We all

freelance with AI. We ask it questions,

can write things for you. It can solve

problems for you. So you have a company

or a nonprofit whatever for each

individual uses blog or chat GPP. They

become more productive. But the idea

that you have business flows at the

institutional level where AI contributes

significantly to productivity, we're way

behind on that except again for

programming. And I think that will take

a long time. There's no one really who

can teach it to you. It may happen by

having startups slowly replace incumbent

firms because startups will are more

likely to be AI native and start with

small numbers of people and do things

with AI from the beginning. But try

going into some big company and telling

people they need to change everything

they do. You know, good luck with that.

I think that's by far the biggest

barrier. I don't doubt we'll

overregulate it at some point, but we

overregulate everything. Like we America

actually can deal with that within

reason. Uh just like, hey, what do we do

next is the biggest problem.

>> And when you think about when you try to

Do you have kids, Tyler?

>> Yes. one daughter, she's 36, two

grandkids, a third on the way.

>> Okay. So, imagine, and you referenced

this earlier, imagine your grandkids are

going into junior high and high school,

and you're trying to prepare them given

what I thought you said was really

powerful about the traditional paths are

no longer guaranteed or they just look

more curved and less, you know, quite

frankly, more opaque.

What skills would you emphasize that

young people develop? And there's no way

to futureproof yourself, but make it

most likely that you in fact have um or

can register prosperity. What how would

you how would you coach young people

thinking about the skills they need to

acquire?

>> I get this question multiple times every

day. I never feel I have great answers,

but one thing many people can do is just

keep current on AI. That's no guarantee

of anything, but it's better than

falling behind. It does involve a lot

does take a lot of involvement because

it changes all the time. But being

curious, learning initiative, and

learning how to retrain yourself and

learning how to network, those have

always been important, but I think

they're truly the skills of the future.

So, I would encourage anyone, whether my

grandkids or not, to invest in those.

Like right now, everyone has the perfect

cover letter, right? So you apply it

means nothing like the system's broken.

Who is it who can vouch for you? So

networks and connections are far more

important. Learn how to do that. Learn

charisma. Learn how to command a room.

Learn how to give a talk.

>> Tyler Cowan is an economist, author, and

podcaster at the Marta Center at George

Mason University. As the faculty

director of the Marta Center, Tyler

co-created Marginal Revolution

University, a free online economics

education platform that has reached

millions. He's also founded Emergent

Ventures, a multi-million dollar fund to

support underrated people and projects.

Tyler has blogged every day at Model

Revolution since 2003, helping to make

it one of the most widely read economics

blogs in the world. He is the

bestselling author of nearly 20 books

and has been a regular columnist at the

New York Times, Bloomberg, and now the

Free Press. Tyler, we really appreciate

your time. Thank you.

>> Thanks, Tyler.

>> My pleasure. Thank you.

Thank you for listening to Prof Markets

from Prof Media. If you liked what you

heard, give us a follow. We'll be off

for Labor Day, but join us for a fresh

take on markets on Tuesday.