America's Bet on AI – The winner takes it all. What if we lose?
foreignpolicy.com
foreignpolicy.com
That the winner will develop the smartest AI, hack governments and launch nukes to eradicate the enemy completely? Or that the winner will forever hold an edge in tech? Or that a super intelligence will be able to suppress other nations from building an equivalent super intelligence?
Come on. This winner take all that pits China vs the US is none sense. It's made up by AI labs in order to keep Nvidia's GPUs to themselves and to decrease competition from Chinese labs. That's it.
In other words, if your coding agent works a lot better than your fast food drive-through ordering agent, being skeptical of AI seems pretty sensible. Hopefully the AI bubble becomes harder to inflate and does less damage when it pops.
There is some truth in this. But only some.
Firstly, pension fund investment means we're all exposed to shocks to the underlying imputed value of these assets. If your roth bought in your roth is now smaller. And mine. And everyone else's.
Secondly, people with expectation of future profit in allied spaces take on debt. Builders incur debt to build the DC. Electricians and Plumbers buy stock inputs. This has obviously inflated supply chain prices, but these people are going to wind up holding goods with no expectation of a customer to buy them. Some will come back from this, but a lot of unsecured creditors are in a bind when there's a massive swing in the construction sector.
Thirdly, a lot of people have swung away from purchases they wanted because of the hyper inflated prices of inputs. Chips basically, and disks. Yes, these are going to be appearing in the market at sharper prices. But, it's also possible some of them are going to be quietly picked up by other players, and never substantive alter the new price point the supply side has instituted on us. Warehousing these parts by the input stream is just as likely as fire sale pricing.
There are other perverse outcomes, as various people who had an expectation of future profit act to secure something in it, without regard to externalities. So, coal burning power plants will dump power and boost coal usage, rather than simply switch off. Landholders who did prep for DC will find other customers who may turn out to be significantly less pleasant for the neighbours, the old rural zoning isn't coming back.
If people strung power pylons to a DC site, they don't quietly jack up the legs, and swing them back to the small town which needs more supply. They look to recover the cost of that asset and so the town, which had to make adjustments because power wasn't available, now can get it, but at the new inflated price not the old price, because power utility gotta cover that AI DC debt.
"Opportunity cost" is very silly. If you make capital imagine a future profit and then it's snatched away, the dragon doesn't just go back to sleep, it starts stomping around being angry seeking something in the same profit space.
The US economy is a $80T scale. If $1T disappears, thats 1% of the national economy taken out in one tranche. I don't think anyone would say that has no material impact on things at large. There would be a certain amount of blood in the streets and the people saying "we still have the assets" would be different people.
BTW, if you think this is all nonsense, please consider that the US REIT sector is $500B of value and is teetering on the edge because of work from home. If those assets are written down, there will be a consequence.
The brick and mortar "we have the asset" here is very concrete. In china, they blow them up rather than leave them empty.