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Speculative Growth and the AI "Bubble" [pdf]

economics.mit.edu

51–60 of 71 posts

Re: Speculative Growth and the AI "Bubble" [pdf]

#51
post #12

Earlier quoted context omitted.

Most of the cost in a fiber rollout is actual fiber in the ground which could be upgraded by simply swapping a few relatively cheap bits of equipment. Data centers and electrical infrastructure has a similar long term value, but most of the AI investment is in compute/manufacturing capacity for current nodes which doesn’t age nearly as well.

> but most of the AI investment is in compute Some people thought that it was misguided when they extended the depreciation cycle of the current AI build out year(s). In terms of raw performance, there is still some headroom (maybe) but those gains are going to be marginal when you look at the amount of compute per watt (if its more than 5 percent I will be shocked). And that push is going to create a whole other set…

20 year old fiber can have another 10-20 years of useful lifespan remaining, I think compute is going to be valuable for a while but even a 7 year cycle doesn’t change much.

Most compute isn’t going to be new at a potential crash and recovery takes time.

Re: Speculative Growth and the AI "Bubble" [pdf]

#52

I have a hypothesis that the bubble in and of itself would not be so problematic if the United States was not in a war with Iran. I am looking to test if there are several second order effects of rising oil prices and supply chain issues that can exacerbate financial contagion from an AI bubble (assuming we are in one) and, to the best of my understanding, it depends on what kind of mechanisms fail to contain the fal…

When a bubble pops, there's always a cause. But it's a messy, chaotic world out there. If it wasn't that cause, then it would be a different one.

Re: Speculative Growth and the AI "Bubble" [pdf]

#53
post #12

Earlier quoted context omitted.

Most of the cost in a fiber rollout is actual fiber in the ground which could be upgraded by simply swapping a few relatively cheap bits of equipment. Data centers and electrical infrastructure has a similar long term value, but most of the AI investment is in compute/manufacturing capacity for current nodes which doesn’t age nearly as well.

> compute/manufacturing capacity for current nodes which doesn’t age nearly as well I mean, compute depreciates, but I think there is zero chance that the value of inference or training is going to fall to zero. Market discovery will find the right price provided the market has the right degree of freedom. Given the type of market it is, I don't see how that won't be the case.

That hardware costs GW of electricity at scale. So barring major disruption in R&D you hit a cost curve cliff where new hardware is simply more cost effective even if existing hardware is free.

Some workloads may make sense running for a few hours a day during cheap solar prices on outdated hardware, but in less than a decade the value is very much hitting zero.

Re: Speculative Growth and the AI "Bubble" [pdf]

#54

Earlier quoted context omitted.

I'm curious about the "if traffic was billed, it wouldn't have happened" part... are you saying that if traffic had been billed per [unit]byte, there would've been no incentive to build fiber networks?

No, if traffic were billed rather than free, we would only get traffic that was deemed to be worth the bill. Most spam, for example, has a very low rate of return. If it cost to send - even a little bit - much of it would become unprofitable. So in that world, we would have fiber, but not (much) international spam.

Ah, I understand :)

Re: Speculative Growth and the AI "Bubble" [pdf]

#55
post #13

Earlier quoted context omitted.

Energy infrastructure for powering a data centre isn't the same as energy infrastructure for powering a city. One is a simple point-to-point link (power plant to data centre), the other is a grid. It's like comparing a railway line from a mine to a smelter with a city's road network.

Most data centres connect to the grid, they don’t connect to a single power station, except in scenarios where there’s a uniquely low cost power supply nearby, like a small Hydro Plant. Utility scale power stations have outputs measured in GWs. Data centres are measured in MWs, although people are trying to build GW scale data centres at the moment. But even then a data centre will want a proper grid connection, othe…

The premise I was responding to was that the energy infrastructure would be built during the rise of the AI "bubble" and subsequently be repurposed after the collapse. If we're just connecting data centres to the grid then I don't see how that is providing any new infrastructure whatsoever. On the other hand, if we're building lots of new power plants to power the data centres (and connecting them to the grid) but then at some point the data centres are shut down, we end up with a huge glut of unneeded power.

Furthermore, to elaborate on my point above: building new power plants in tandem with data centres that demand GWs of additional power does nothing to address the needs of the grid itself. The grid is not built to handle all that new power, and the consumer electricity demand is not there anyway.

Re: Speculative Growth and the AI "Bubble" [pdf]

#56
post #45

Earlier quoted context omitted.

Yeah, that clarifies that you're missing the core idea here. Brett Deveraux is pretty popular here, so maybe you'd like the analogous discussion of high-equilibrium and low-equilibrium ancient economies? https://acoup.blog/2020/08/21/collections-bread-how-did-they... As much as you may want to move from the low to high equilibrium, it would be pretty hard in an ancient society. In the modern world, with enough exuber…

How do you define "low" and "high" equilibrium? By estimated GDP or by actual production? Because we definitely seem to be in a world where GDP inflation is getting more and more divorced from incentives to actually produce things. With respect to AI and the paper being discussed specifically, all evidence I've seen is that AI's primary applications are within military and intelligence and that the escalating arms ra…

Ah, another example of multiple equilibria! Investment in intelligence and defence spending can lead to entrenched interests which demand continued spending. The famous military-industrial complex. The coordination needed to break out of this equilibrium can be made much harder by multiple states each needing to meet the defence spending of their peers. It's hard to cross from high defence to low defence spending (consider unilaterally disarming during the cold war. Borderline impossible. You need careful coordination through treaties) and also difficult to go from low defence spending to high absent some obvious threat (you could perhaps model appeasement as an example of this, though I think other factors dominate).

Notably, one of the reasons that the military industrial complex can be hard to unwind is that it works well for capital and workers. Consider all the programs you've heard of which boast about providing jobs in every single state. Whether these different equilibria are better or worse for labour (or fractions of labour giving you your diverging K-shape) is a separate question and potentially changes over time.

One historical event you could model as a change in equilibria was the industrial revolution. Instead of elites consuming economic surpluses, the economy change into a mode where those surpluses could be reinvested in productive capital, new technology, and manufacturing in a self-reinforcing cycle (of course these avenues didn't really exist before). Famously, within this new equilibria, labour did not do well at first; awful conditions in factories with terrible life expectancies. But those workers' grandchildren lived lives of relative prosperity as a result.

All of which is to say, the existence and description of multiple equilibria in economies is a different question from how labour and capital fare in those equilibria.

Re: Speculative Growth and the AI "Bubble" [pdf]

#57
post #45

Earlier quoted context omitted.

Yeah, that clarifies that you're missing the core idea here. Brett Deveraux is pretty popular here, so maybe you'd like the analogous discussion of high-equilibrium and low-equilibrium ancient economies? https://acoup.blog/2020/08/21/collections-bread-how-did-they... As much as you may want to move from the low to high equilibrium, it would be pretty hard in an ancient society. In the modern world, with enough exuber…

How do you define "low" and "high" equilibrium? By estimated GDP or by actual production? Because we definitely seem to be in a world where GDP inflation is getting more and more divorced from incentives to actually produce things. With respect to AI and the paper being discussed specifically, all evidence I've seen is that AI's primary applications are within military and intelligence and that the escalating arms ra…

Housing is a solved problem, it's kept scarce on purpose by artificial barriers. Food also is, the world already produces more food than people need (proper distribution remains an issue, however).

Re: Speculative Growth and the AI "Bubble" [pdf]

#59
post #41

Earlier quoted context omitted.

That is not at all what multiple equilibria means. This has nothing to do with any notions of a K shaped economy (which remember, after covid was describing low wage service workers getting huge real wage increases while white collar layoffs happened in 2022) but rather (to oversimplify) it is describing the idea that you can have multiple economic conditions that are rational to stay in while it is impossible to rat…

"In a K-shaped recovery, different parts of the economy move in opposite directions at the same time following a recession or downturn. One segment—the upper arm of the K—experiences an increase in wealth due to rising asset values or incomes. The lower arm faces increasing financial strain due to declining purchasing power along with stagnating or decreasing wages." (source: Britannica) So you have it exactly backwa…

If all that drives you is a desire for religion and freedom from empirical and mathematical thinking, then you are right there is no point arguing with you. I hope you find that which you seek.

And the K in K shaped economy came from turning the K 90 degrees so that the left arm (representing the low wage service sector) and the right arm (representing rising asset prices) were elevated while the middle was depressed. It got retconned to mean "increasing inequality" by those who couldn't bear to admit that something had gotten better for those lower on the wage scale (which objectively happened back then).

Re: Speculative Growth and the AI "Bubble" [pdf]

#60
post #56

Earlier quoted context omitted.

How do you define "low" and "high" equilibrium? By estimated GDP or by actual production? Because we definitely seem to be in a world where GDP inflation is getting more and more divorced from incentives to actually produce things. With respect to AI and the paper being discussed specifically, all evidence I've seen is that AI's primary applications are within military and intelligence and that the escalating arms ra…

Ah, another example of multiple equilibria! Investment in intelligence and defence spending can lead to entrenched interests which demand continued spending. The famous military-industrial complex. The coordination needed to break out of this equilibrium can be made much harder by multiple states each needing to meet the defence spending of their peers. It's hard to cross from high defence to low defence spending (co…

When Eisenhower made the expression famous, the military hardware industry was many times its current size, as % of gdp. It doesn’t exist anymore; what does exist is mechanized parrot like repetition of phrases from 70 years ago.
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