The (real) dead economy theory | Hacker News Reader

The (real) dead economy theory

pluralistic.net

79 pointshn_acker62 comments

There was a recent discussion:

The Dead Economy Theory: https://news.ycombinator.com/item?id=48324712

"The underlying purpose of AI is to allow wealth to access skill while removing from the skilled the ability to access wealth". (comment on the discussion above: https://news.ycombinator.com/item?id=48334069)

> something is valuable because some people think other people will pay more for it in the future, and not because it does useful things

This has been the definition of finance for hundreds of years. I don't know why it comes across here like this is a new phenomenon.

Just because something is doesn’t mean it ought to be. We’ve settled on this system because it seems to be generally the most effective way of valuing things. In times of extreme changes in valuation it comes off as more egregious than normal.

Finance has always run on both: an asset that produces something has a floor. An asset that produces nothing does not. Between the two lies human nature. One way to get rich is to focus on fundamentals. One way to get rich or poor faster is to bet on human nature.

There used to be much more of a belief that the reason this stuff has an appreciable value to speak of is because it's either creating a channel for society's productivity or it's creating a position to skim pennies off of society's productivity. But less and less does it feel like productivity is even in the equation anymore. What the quoted statement describes is much closer to a Ponzi scheme than what finance is actually supposed to be about, but it's getting harder and harder to tell the difference.

Also if the cutoff point for raising concerns about this was hundreds of years ago that really sucks for everyone alive today.

Is there a particular instrument or transaction you feel creates a scheme? What specifically would you disallow, and what would be the downstream impact you imagine of doing so?

It's like I said, the degree to which productivity is in the equation.

Money just looping around until settling on a few people, otherwise doing nothing else = zero productivity, zero value

Action which results in a bit of productivity = a bit of value

Action with results in lots of productivity = lots of value

I'd say the exact degree of separation where it becomes "a problem" is roughly equal to the exact number of sand grains that form a pile. I can tell you one area where society is already suffering greatly from dead economy and that's the housing market. The downstream impact of that industry not being realistic is happening right now.

Also I would like to refer people to a story called "The Golden Goose." Everyone seems familiar with it but it doesn't seem like most people have seen the end.

Every derivative of productivity is measuring future productivity. What specific product were you thinking didn't?

Well if it's eating the economy to an unprecedented extent of morbid obesity, it might lead to the most massive stroke and complete or partial collapse.

It used to be only a few steps removed from actual value. Like an empty lot is worth an amount because when you plant trees it's worth an amount because when it has fully grown trees it's worth an amount because when you cut down the trees the timber is worth an amount. That's an acceptable function of finance, it allocates the value of a logging plantation between several different people who may own it at different times, so that one doesn't have to hold it for the full 20-year growth cycle to realize any value from it.

We needed to develop long-term value instruments to incentivize long-term planning. Bonds are necessary for large public projects, for instance. There are many complexities in deriving instruments from that basic concept. What makes you think a particular one shouldn't be acceptable and why?

>> something is valuable because some people think other people will pay more for it in the future, and not because it does useful things > This has been the definition of finance for hundreds of years. I don't know why it comes across here like this is a new phenomenon.

I don't think so. However, you can convince me by providing a reference to that definition in a textbook used by top schools, I'm honestly curious to see something like this.

What's dead is mainstream economic science's assumptions about free & fair markets, with well-informed agents that act rationally. We all know that's bs. As I've heard an economist phrase it:

One can study economics for 1000s of hours. Not spend a single hour on psychology, or economic history. And then obtain a bachelors (or even masters) degree in economics.

This, while it's crystal clear that markets aren't always fair. Playfields tilted. Buyers & sellers ill-informed, or not free in their decisions. Small investors can't touch instruments in institutional investors' toolbox. Historic mistakes are made again & again.

And psychological effects matter. Markets have a 'sentiment' (bull vs bear), investors fomo driving buy/sell frenzies, etc.

So is it any surprise that valuations are irrational? Let's face it: stock markets are a casino, filled with gullible fools & deep-pocketed crazies. Oh yes, some sane ones in there too.

'Dead' economy theory, you say? I guess the economy must have been alive at some point, then. In my short life, though, I don't think it ever was....

> That's the logic of the whole market today. AI – the world's money-losingest technology – attracts investment at the expense of everything else.

I expect Cory to have skepticism about technology that can be exploited for dystopian purposes, but calling AI "the world's money-losingest technology" is out of touch. If AI can support/replace some intellectual work, it'll be revolutionary, and that's what the investment bet is about.

I get that the blog post is making a separate point about Musk's companies but it's dissapointing to see mistakes like this in Cory's thinking

> calling AI "the world's money-losingest technology" is out of touch

In what way is it out of touch or wrong? It is objectively correct today.

It may very well not be correct 2 years from now, but his statement was about the present, not the future.

AI is currently a massive money sink. Yes or No?

Obviously no...? The implications far outweigh the "money sink" notion...

Obviously yes. On evidence alone the path to profit doesn't exist for most of the massive capital sinks. A small number of players At best MAY return on investment, but in the cycle time capital needs a return, most are functionally incapable

AGI isn't happening. So, it's incremental improvements on LLM and Generative methods. Any advance which requires more tech inputs demands more capital. Any advance which requires less tech makes all the existing capex look stupid.

I have noticed that those that are the most optimistic about AI almost always talk in a future-tence.

It WILL do this, it COULD achieve that etc.

I think Ed Zitron challenged us all to talk to an AI booster without letting them use future tense.

Not for me, it means I don't have to hire an engineer right now.

There's a distinction.

- For the AI provider it is a massive money sink due to cost/revenue maths

- For the AI consumer it's not a massive money sink if you arrange things so your ongoing costs are lower than your savings

It isn't a simple yes or no overall, only per side of the fence.

"money-losingest" -> AI already brings in billions and many AI companies could become profitable in little time if they'd stop R&D and simply keep selling what they already have.

yes, it's risky and investment-heavy but it's not a bottomless pit with no path to break even. there are many other recent technologies - NFTs? data centers in space? - that would be a better fit for this label.

Is that true? If Anthropic stopped last November at versions 4.5, would people keep using it enough to recoup the investment?

I think I posted this under the wrong comment.

“Losing” is a loaded word choice. If I buy something I’m really happy to have, I probably don’t describe it as losing the money.

Obviously the investment expense has been extremely high, which is what the replies are quibbling about.

> If AI can support/replace some intellectual work, it'll be revolutionary, and that's what the investment bet is about.

That's one big "If". From personal experience AI just tends to burn money. Time will tell if the investment pays off but I disagree that, at this time, it is out of touch to say AI is a money sink.

I share your feeling that LLM-based AI is a high-potential technology.

The issue is the objective dollars and cents financials of the situation. It’s literally the technology that is the money-losingest at this time.

The commercial utility of the technology can’t become viable just by being really useful.

There’s a good accounting argument to be made for AI IPOs happening out of a serious need for capital.

I wouldn’t bet money at a casino on this, but if OpenAI went completely out of business or was absorbed into irrelevancy within a calendar year, nobody with a finance background would be surprised. They objectively cannot exist in ~18 months without massive spending cuts or additional cash infusion. And they can’t make their models better and serve more tokens to build that future potential that justify their present valuation without additional capital, which becomes decreasingly efficient as data center build costs skyrocket.

AI has wonderful potential but no amazing product is guaranteed commercial viability. If Uber spends $1500 on tokens per employee they might as well spend $0 on AI and hire more real people to compensate.

I think about how the railroad barons went through a somewhat similar process. By the end of the American railroad buildout, numerous lines became financially unviable within a few short years or decades, some not even really making it into the automobile era. The only railroad business that ended up with any sort of long term profit viability was freight.

The economy gets bigger every year. Therefore, any similarly proportioned large "thing" becomes the largest of all time. Uber lost tons of money for years, I remember the complaints about them. Investors made lots of money because they believe in future value. You're not being forced to make that bet - "money losing" is great for us if we aren't invested!

IPO investors in Uber didn’t actually make a lot of money. The stock has only gone up by around 7% per year since going public. I can make over 4% guaranteed by putting the money into a CD.

Ironically, we are being forced to make that bet, thanks to NASDAQ’s new indexing rule changes made just for SpaceX.

I think what you’re describing is essentially a form of “inflate away the debt.”

Sure, if we wait enough decades SpaceX will be legitimately worth trillions of dollars.

Uber looks like a little baby loss leader compared to AI companies.

I wasn't thinking about IPO investors - the funding rounds before that are where the real money is made.

I am not describing inflating away debt. I'm talking about returns.

I figured you might be speaking about the pre-IPO investors.

Uber’s post-IPO stock performance has been a lot like “inflating away” the mediocre performance of the company. Its growth since IPO hasn’t been able to beat out any of the major indexes. Gaining only 7% value per year means that Uber’s valuation peaked at IPO in terms of real value against alternative corporate assets and considering currency inflation. There’s no real reason to have bought their stock on the public stock market in retrospect. The only winners are pre-IPO investors.

The problem is, pre-IPO investors are just a small group of people that aren’t really relevant to the long term viability of a company or the success of the economy that surrounds that company. Their success doesn’t really impact anyone else outside that small group of people. They have figured out a system for personal profit that doesn’t rely on building a viable company at the most basic level (and, at least, Uber eventually became viable, but the new wave of AI companies doesn’t look to be in the same financial realm).

The end result is a wealth transfer to the pre-IPO investors from post-IPO investors, employees, customers, etc.

When I say “inflate away” what I mean is that SpaceX leadership has pulled unusual levers in the IPO system itself to manufacture a high valuation to maximize wealth transfer from post-IPO investors to pre-IPO investors, and as a result the long-term best-case scenario is probably that the valuation will come back to earth slowly over time via below-market returns, with the worst case being a huge correction. If the stock was more fairly valued at IPO, there would be more actual investment potential for post-IPO investors. Instead, that potential is being captured almost entirely by pre-IPO investors, and not in the usual and more sensible way (higher risk = higher reward).

In other words, the usual formula is inverted: pre-IPO investors are shouldering the least risk for the greatest returns.

Tesla has been able to sidestep this dead economy theory by at least shipping a lot of cars and being a reasonably profitable automaker. They at least ran a real business. There wasn’t any pressing reason to sell your shares. Fast vehicle shipment growth at a profit was able to at least give Tesla some level of justification for their valuation.

I'm not worried about any of that. I don't care whether SpaceX is successful or not, or whether those investors make money or not.

My only comment is that as time advances, "largest of all time" is common, because our world grows in population and both realized and potential value.

I see what you mean now, although it’s a little confusing to me against your previous comments in the thread.

It seemed like you were trying to say that companies like uber looked pretty insanely overvalued until they’re not. Everyone kept saying that because they didn’t think about how the current number is always the biggest number.

That’s why I pointed out that, well, yeah, Uber is a big successful company, but they haven’t actually been a particularly good investment relative to the market since they IPOed.

Good point - you're right, my personal feelings about these companies do bleed into my language. :)

I do think that these companies look insanely overvalued but actually are likely that value, and that investors are thinking on a timespan where that's okay. It's not always a bad call to pick a company as opposed to investing in the entire market - people have preferences about the technologies and ideas they want their investments to support!

I think Uber has been doing well relative to the S&P. 60-something vs 70-something percent over the last five years?

It can't. It can only provide the appearance of doing so. It's just the Eliza effect on steroids.

> I expect Cory to have skepticism about technology that can be exploited for dystopian purposes, but calling AI "the world's money-losingest technology" is out of touch.

Since when stating facts is "out of touch"? Currently AI is losing many billions of dollars, it's a fact.

> If AI can support/replace some intellectual work, it'll be revolutionary, and that's what the investment bet is about.

"replace some intellectual work" says nothing about the cost of doing it, the losses keep piling up and "revolutionary" pies in the skies come and go without real economic or financial improvement - on the contrary, the economic situation is getting worse mostly due to AI because of the fake urgency of the "AI race". A slower pace of development would cost a lot less and might be economically viable but that's not what we have.

> but it's dissapointing to see mistakes like this in Cory's thinking.

Again, what mistakes? He's stating facts, you're hyping expectations based on marketing propaganda - who and what is mistaken here?

Whenever I read Cory Doctorow, I feel like someone took the complement of Paul Graham's writing and posted it. I personally find both of them vapid and annoying.

Edit: the article that the author is commenting on is IMO much better than the linked commentary. There's not much to it

https://crookedtimber.org/2026/06/15/one-big-grift/

most interesting sentence is the first one

I just don't get it. How do you go from writing the kinds of future visions he has to staring at the singularity practically hitting you in the face and calling it "the world's money-losingest technology"?

Is it because he isn't actually using the technology for work on a day-to-day basis like a lot of us?

I think you are confusing Charles Stross with Cory Doctorow

I think you’re right. And yet still.

Ideological capture is an often socially enforced prison

For the people around them, yes. They themselves don't see it that way.

> singularity

I just cant get over this term, do you honestly believe in this? I use AI daily and while it is super useful I see too many limitations for it to “recursively improve and cause an intelligence explosion”.

1. Clearly, the people selling AI with this idea benefit greatly with this promise of infinite upside. Can you can trust them?

2. Singularity essentially requires to handwave away a lot of baked-in issues with LLMs or rely on unrealized innovation.

I do. Just based on personal experience of using these tools for the last several years and how they’ve progressed.

So, what your saying is that there is a perhaps linear, perhaps exponential increase, and that you are projecting that increase forward indefinitely. Let me know if this is unfair.

Counter argument: does anything else work this way? E.g. Moores law had an end too right? I would argue that the core tech breakthrough (Transformer-based LLM) has been improved, but no fundamental further innovation seems to have been made. The current architecture fundamentally hallucinates, even Fabel even on trivial problems. I.e. as number tokens increase error likelihood goes to infinity. How then, can this scale recursively to infinity?

Not indefinitely but at least to the point where they’re smarter than humans.

The singularity usually refers to the idea that although the rate of relative improvement of a technology is approximately constant at a constant (human) intelligence level ([dy/dt]/y ≈ c), producing exponential growth, if said constant were actually proportional to intelligence and the technology under improvement being intelligence itself ([dy/dt]/y ≈ cy), then solving the differential equation leads to a blow-up to infinity in finite time, a mathematical singularity.

If instead additional intelligence does little to speed up AI development (due to the need for other inputs like caputal and time), you could get a world where AI becomes better than humans at AI development and begins a cycle of recursive self-improvement without explosive growth leading to a singularity.

That's a pretty good concept and you could say there is a fairly wide gap between your everyday singularity and the ultimate singularity.

Which seems to me likely the result of an unforeseen variable or variables, and that's got to have outsized, uncharacterized, and unexpected importance to have such a strong effect.

When the overwhelming consensus is that wonderful things are waiting just around the corner, it still could turn out to be just the opposite and you'll never know until you actually turn the corner.

What about the tools makes you think we've hit the singularity? My experience with them is that they've memorized a lot of stuff, but can't make anything fundamentally new. Most of the useful things LLMs do amounts to semantic search.

They’re discovering previously unknown mathematical theorems.

How is that not new?

They are new proofs and for sure useful but as far as I’ve understood mainly interpolative. E.g. an LLM can “create” a poem about a purple chicken as it has datapoints for “purple” and “chicken”, so it can create something plausible inbetween.

Similarly, in my mind it can interpolate proofs by interpolating between data points for technique A and technique B. This is novel and brute-forcing proofs this way is useful. It is analogus to how sometimes it can generate programs that pass unit tests, I think.

However, creating fundamentally new concepts outside of the interpolated datapoints is not something I am convinced of. Maybe it can extrapolate some things, if correct add it as a data point, continue. Essentially a search, and it would be amazing if this works and maybe we can get some recursive improvement this way. But the “ideas” it will use to conduct this search are a function of the input data points as well, and thus in my view fundamentally limited in novelty. I am not discounting the usefulness, but I am not convinced you can just keep doing this indefinitely scaling intelligence exponentially.

Of course nobody can know yet really and I am just speculating just like you. But I also think the “experts” Sam and Dario also don’t know, and given their incentives I am not really convinced by them.

They're finding new examples in well-known categories of stuff. Also proving is a question of search. They're finding some stuff we missed, but not because they're smart, just because they have lots of data and compute. Think of them as something closer to brute force.

What astonishes me about singularity skepticism: every argument was, from when it was released, "but it can't do X", "it's impossible/too expensive". The benefits AI -> AGI are staggering, the competition is intense (both intra-industry and internationally), and the gains self-reinforcing.

I have fears of dystopian worst-case scenarios, and dread the rapid pace of change and what it will do to real lives lived in the world, but it's only clanker cope/wishcasting that believes that (AI+human ingenuity) won't produce real AI ingenuity.

Re-read your comment in four years, I'll take the bet you'll find it very naive.

>Think of them as something closer to brute force.

Well brute force is something I had waited for all my life so it could make a personal computing experience higher performance and more fulfilling.

By the time 1980 rolled around.

In some ways it's like a fundamental assumption that's always been there and nobody questions or really "thinks" about. It hurts the brain, sooner or later you want a computer to be able to do some thinking for you ;)

It's one of the easiest tech concepts to understand, especially for those who don't have very deep abilities.

Hardware is hardware, stronger is stronger, and quantity has its own qualities.

People in certain positions can go farther with nothing more than this firm a grasp of computer science or intelligence and it shows.

The only thing to be gained by continuing to grow the scale of "datacenters" from this point is the brutishness.

I expect it to pay off too, for those who can afford it, just not for everybody.

I believe that AI is a singularity. Just like a Black hole, no information can escape and you're slowly (by subjective experience) dragged in and spaghettified.

Sounds great, but what is this belief based on?

I think having a technical argument is important, as we live in a time with lots of hype merchants who stand to benefit from record breaking IPOs. Propaganda can affect us all, how do you know you aren’t being sold to?

The best part of the Singularity is that, once everyone who wants to uploads their consciousness to a computer does so, we mortal humans can simply unplug it and go on about our lives.

It used to be that society always took some time (read: decades or generations) to absorb new technology. To percolate into various niches, people understanding how it works & how to use, its limits/drawbacks, getting used to its effects, etc. Even mass-production machinery takes time to build.

Modern AI has taken those brakes off. Humans are taken out of the loop. IT infrastructure that modern society leans so heavily on, could be overhauled overnight into a very different beast. We wouldn't know what's happening before it hit us.

If anything, society should be reluctant to give AI powered systems 'hands & feet'. Use systems offline where possible. But we don't. Maybe some "Morris worm of the AI age" will get us to pay attention.

Whatever is coming, if it's bad we probably deserve it.

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