What is Wrong with the Emerging AI Economy?
By Rob Tyrie founder and CEO www.ironstoneadvisory.com
First of all, one can argue today that there’s nothing wrong with the AI economy for the magnificent seven trillionista companies that include:
- Alphabet+Google
- Meta+MetaAI
- Amazon+AWS
- Microsoft
- Nvidia
- ASMC
- ASML
- Tesla+Starlink+X.ai
- JP Morgan
Now for a little bit of sensemaking. The new and novel AI conglomerates and Kereitsu’s are being developed. These new companies are not much different from the colonist companies like the Hudson Bay Company or the Virginia Company that were created to apply advanced extractive capitalist methods to control vast stores of wealth by a few families.. and buy a few I mean less than 20 or 30 families in a 10 Billion human population. These companies were founded amongst the ashes of industrialism, it should be the birth of what we call data driven modern capitalism... which unfortunately tends towards autocratic control over economies and people.
There’s an interesting historian and Economist out of MIT named Daron Acemoglu. He’s become famous in the last little while because he’s the first major Economist that has indicated that it’ll take 10 or 20 years instead of one or two years for an AI wave of capitalist organizations expanding their control and wealth and very few hands. In the scheme of History one or two years versus 10 years is a very tiny time slice and represents little difference, in the wave of History. The fact that he’s been co-opted by the media as an ai cynic, when he’s actually an obvious supporter of AI control companies and mechanisms, that he’s like an open door analyzes why things will change either for what he calls extractive capitalism or inclusive capitalism. He is an observer not an actor. And hopefully his thoughts are well understood by new entrepreneurs and new governors. It is surprising that he was picked up by Goldman Sachs and now the Wall Street Journal as an AI Cassandra of our time.
Big thinking and big history
Let’s look back a little bit. Daron Acemoglu is a highly influential economist whose groundbreaking research has reshaped our understanding of the role institutions play in economic development, growth, and inequality. As the Elizabeth and James Killian Professor of Economics at MIT, Acemoglu has published extensively on political economy, economic development, labor economics, and the economics of networks.
Acemoglu’s most notable contributions revolve around his work on the impact of institutions on economic outcomes. In his seminal book "Why Nations Fail: The Origins of Power, Prosperity, and Poverty" (2012), co-authored with James A. Robinson, Acemoglu argues that the key differentiator between successful and unsuccessful nations is the quality of their institutions. Countries with "inclusive" institutions that enforce property rights, create a level playing field, and encourage investments in new technologies and skills are more likely to experience sustained economic growth than those with "extractive" institutions that concentrate power and wealth in the hands of only a few.
Acemoglu’s other influential books include "Economic Origins of Dictatorship and Democracy" (2006), also co-authored with Robinson, which examines the economic and political forces that shape nations' political institutions, and "Introduction to Modern Economic Growth" (2009), a comprehensive overview of the theoretical and empirical foundations of economic growth.
Beyond his books, Acemoglu has published numerous widely-cited articles on a range of economic topics. His research has employed a mix of theory, historical data analysis, and econometric methods to yield important insights on issues such as the impact of labor market institutions on unemployment, the role of technological change in shaping income inequality, and the dynamics of political transitions.
Acemoglu’s ideas have profoundly influenced policy debates and academic discussions worldwide. His work on institutions and economic development has been particularly influential, shaping the way governments and international organizations approach issues of poverty, inequality, and growth. He has also been a prominent voice in discussions on inequality, technological change, and the future of work in developed economies.
Recognized as one of the most cited economists in the world, Acemoglu’s impact extends beyond economics, with his ideas shaping discussions in political science, history, and other social sciences. He appears to be a rational scientist.
So why am I looking at this big picture? I do it because I think that History either echoes or rhymes with what the current state of uncertainty in the world economy. It relavant with this relatively new imbalance that has occurred across the last decade. This new imbalance and the shift of capital control from energy resources and other primary resources across manufacturing industrialization and now has moved towards data extraction from various sources with existing or new. And that extraction is occurring with massive compute capabilities needed for new kinds of algorithms that transform or generate different results that are very valuable to very few companies. The market is predicting this advance and control and tendency towards monopolistic behavior with massive valuations of these trillion dollar companies controlled by very few people.
Here are some key points that can be derived from his work on the advance of economies and riches as applied to history but then re-factored, refined and re-molded into relevant structures that predict the growth of these companies and their success along with multi-generational likelihood of control and wealth attainment.
This thinking applies to the uncertainty in the application of this new “ai- ecology” that’s emerging now.
How advanced capitalist economies could leverage AI for monopolistic control and wealth concentration:
1. AI, the new black gold: Just as oil barons once controlled the lifeblood of industry, AI titans now hold the keys to the digital economy. Will they share the spoils or keep the riches for themselves?
2. The algorithmic 1%: As AI automates jobs and boosts productivity, the lion’s share of gains could flow to an elite few - unless policies are put in place to spread the wealth. Robot taxes anyone?
3. Surveillance capitalism on steroids: Tech giants are already vacuuming up our data to fuel their algorithms. With AI, they may gain an unassailable advantage, leaving consumers and workers powerless. Algorithm taxes to limit or share power?
4. Monopoly 2.0: Network effects allowed Big Tech to dominate markets. With proprietary AI systems, these behemoths could become untouchable, stifling competition and innovation. These monopolies can occur in relatively small markets so they don’t appear as monopolies when there are other nations running the same institutions. Think how a good set of salt mines work for hundreds of years of cash flow, although salt is one of the most naturally available minerals on the planet, because oceans.
5. The global AI arms race: As nations vie for AI supremacy to boost growth, will it lead to shared prosperity or a winner-takes-all dystopia? Policymakers must choose wisely, and in support of these large companies not in complete reactionary opposition.
6. Rage against the machine learning: If AI is used to relentlessly automate and deskill work rather than enhance human productivity, expect a populist backlash that could turn ugly among small “lost” generations that used to be in control of things and now are not.
7. Codifying inequality: From credit scores to hiring algorithms, AI risks baking historical biases into automated systems, perpetuating a cycle of digital discrimination. Vigilance is vital. Unfortunately it is clear that this can be transparent and it is clear that it is being made opaque by some Nations.
In summary, Acemoglu warns that AI, if left unchecked, could be a powerful weapon for entrenched interests to entrench themselves further, potentially exacerbating wealth gaps, squashing competition, and fraying the social fabric. The decisions we make now will shape whether AI is a force for widespread prosperity or a tool for monopolists to tighten their grip.
What does a citizen do?
Well that’s the million dollar question of course. The most obvious thing is to do nothing. You could wait for instructions from the marketplace, and look for new jobs or new education is your job changes in this new approach to capitalism. And hopefully make enough wages to keep a home and family as your consumer behavior is highly influenced by a few players.
You could shift to a community that is impervious to this Juggernaut of change, maybe you find a long lost island somewhere, or a backwards, failed-state where you’ve got control over a small amount of capital like a farm or a copper mine... or a good clean water sourcez and just live that life of a small scale robber baron.
Or maybe you can adjust. That means re-education and learning about both citizenship at the same time as powerful new institutions that are evolving. That’s a hard call especially in the demographics of older countries where it’s basically very difficult to teach an old dog a new trick.
And then there’s the small minority that cares a lot about all the citizens and communities that can call us and gather political force for the people by the people and not by companies.
That’s the hardest stretch because it will be massively popular pressure to just relax through this and pay rents to various and small sets of families that control these AI juggernauts.
This is part of a series of thinking about how economies change and how Innovation flows through them and how this one is as big as the industrial Revolution that recalculated the wealth of the world, and move modern free Democratic societies back to the wealth inequality that the Egyptians experienced, the Romans as well as the British and Portuguese over time. In future essays I will look at research related to Innovation and Technology change and how that impacts citizens hopefully to build new tools and resilient small-scale infrastructures that grow into a balance to that inequality and inequity. I will leave you all with this idea: Open Source and the AI Commons will be a key to freedom and privacy in the future and that’s something we will explore too.
#ai #futuresthinking
Rob Tyrie is an analyst and builder of systems in software that help insurance companies and banking organizations to be more efficient and extract more profits from their operations. He’s been doing that for almost 40 years and had a small and large scale depending on the quarter of the year. He’s both a student of history and economics as well as philosophy, and has deep knowledge about how software changes the world. Read more about him at www.greyswanguild.org and www.ironstoneadvisory.com, organizations he’s helped grow from the whiteboard to productive infrastructures and microstructures.
A. Citations [ Daron Acemoglu’s Works]:
[1] Daron Acemoglu - CIFAR https://cifar.ca/bios/daron-acemoglu/
[2] Daron Acemoglu - The Decision Lab https://thedecisionlab.com/thinkers/economics/daron-acemoglu
[3] What are some of the key ideas of economist Daron Acemoglu? https://www.tutor2u.net/economics/reference/what-are-some-of-the-key-ideas-of-economist-daron-acemoglu
[4] Daron Acemoglu - MIT Economics https://economics.mit.edu/people/faculty/daron-acemoglu
[5] The permanent struggle for liberty | MIT News https://news.mit.edu/2019/narrow-corridor-acemoglu-liberty-0924
[6] Book review: 'Why Nations Fail,' by Daron Acemoglu and James A ... https://www.washingtonpost.com/entertainment/books/book-review-why-nations-fail-by-daron-acemoglu-and-james-a-robinson/2012/04/20/gIQAcHs8VT_story.html
[7] Daron Acemoglu - Wikipedia https://en.wikipedia.org/wiki/Daron_Acemoglu
[8] Daron Acemoglu - Premios Fronteras https://www.frontiersofknowledgeawards-fbbva.es/galardonados/daron-acemoglu-2/
B. Citations [ AI Bad for the majority ]:
[1] Capitalisn’t: Is Technological Progress Good for Everyone? https://www.chicagobooth.edu/review/capitalisnt-is-technological-progress-good-for-everyone
[2] Rethinking Capitalism: In Conversation with Daron Acemoglu https://wheelerblog.london.edu/in-conversation-with-daron-acemoglu/
[3] Why the Power of Technology Rarely Goes to the People https://sloanreview.mit.edu/article/why-the-power-of-technology-rarely-goes-to-the-people/
[4] [PDF] Harms of AI | MIT Economics https://economics.mit.edu/sites/default/files/publications/Harms%20of%20AI.pdf
[5] Rebalancing AI-Daron Acemoglu Simon Johnson https://www.imf.org/en/Publications/fandd/issues/2023/12/Rebalancing-AI-Acemoglu-Johnson
