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AI's economics don't make sense

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Re: AI's economics don't make sense

#191

Post by mrandish »

JohnMakin wrote: post #186
mrandish wrote: post #115

Earlier quoted context omitted.

I've only read a few of his pieces here and there and had just assumed he was an AI skeptic, so I never thought his position was LLMs would never be good for anything at any price. That's a pretty extreme thing for any serious person to have ever claimed. Frankly, it seems more like a straw man exaggeration of AI skepticism. I consider myself to generally be an AI skeptic, but to me that means skepticism about: 1) Ne…

Yea, this is a good article documenting how he was claiming this early on in 2024, that the models were as good as they would ever be and mostly worthless: https://www.theargumentmag.com/p/ais-biggest-critic-has-lost...

Thanks for that link. It's solidified the growing suspicion I've had that Zitron wasn't worth paying much attention to. If I'd read more than 5 or 6 of his posts I'd probably have gotten there sooner. I now place him alongside AI critics like Gary Marcus whose early intuitions seem to have hardened into an extreme and unchanging broken record instead of a more reasonably nuanced counter to the most frothy AI hype.

It's sad because such extreme, over-broad views presented as absolutes save AI zealots the trouble of creating straw men of skeptical positions. It's easier to just lump all AI skeptics together with Zitron and Marcus. I guess it's time to call myself something else, like maybe "AI Realist." My skepticism around AI has always been more specifically targeted to questioning more extreme claims about the degree of impact and how soon it will be meaningfully felt across broader society. I've also tried to be clear my concerns are centered on LLMs and not AI or machine learning in general.

My position regarding the long-term (5-10 yrs) has always acknowledged that LLM-based solutions will continue to improve substantially, find more real-world, meaningful use cases and that the currently unsustainable cost-to-value will eventually normalize to a sustainable equilibrium enabling profitable businesses (after some major financial pain); but, that LLMs as a technology still have some fundamental limits on what they can do which aren't separable from how they innately work. Practically, this means I doubt that LLMs, as one type of AI, can ever fully replace an experienced, highly-effective human's ability to self-develop fundamental new knowledge from novel contexts then reduce that learning to high-value abilities in applied practice and then iteratively build on that loop to discover entire new areas of knowledge which weren't even visible without the prior layer of new knowledge - and then do that over and over. I've never thought that goal is categorically impossible for AI, just that it will require a new and different approach beyond LLMs. While that new approach may incorporate LLMs as an essential component, just evolving, refining and expanding LLMs alone won't get us there. I'm encouraged that recently several top AI research luminaries have been saying similar things.

Re: AI's economics don't make sense

#192

Post by mike_hearn »

Yizahi wrote: post #180
mike_hearn wrote: post #178

Earlier quoted context omitted.

To me at least, it means a market in which the basic rules of commerce are enforced but beyond that the government doesn't micromanage. For example, contracts are enforced, there's some basic truth in advertising laws, there's a trustworthy currency available, and all the other basics of civilization like "your competitor isn't allowed to murder you". It's obviously a fuzzy scale. In a free market like that it's not…

In the market you have described we will inevitably end with a monopoly in everything, simply because you didn't mention anything preventing that. To avoid monopoly a much more micromanaging government is required. At minimum we would need a specialized bureaucracy department investigating monopolies, an advanced legislative and judicial systems enforcing such laws, a lot of regulation regarding common social good (e…

It's not that we can't see them - I literally named some examples. But where is the evidence for your specific claims, because there's plenty of evidence against them. Markets without much regulation are routinely very competitive. Look at the computing industry, which for most of its history had no industry-specific regulations at all beyond the illegalization of hacking - a simple extension of private property rights.

And the effect by which regulation actually strengthens incumbents and reduces competition is well known.

A common problem in these discussions is conflation of different goals. You talk about companies selling "poisonous shit". That's not a competition related goal so has nothing to do with anything I've been saying. It's an environmental goal. Governments often pass environmental law fully accepting that it will reduce competition and might strengthen or even create new incumbents - and they don't care! In fact most environmental law is like that because it's exactly as you say, other countries like China don't pass such laws and out-compete local firms as a consequence.

But that's not a failure of the free market. It's a failure of environmental law. Or, sometimes not even a failure, just a known tradeoff.

As a general rule it's hard to find markets that are controlled by monopolies over the long run without government regulation being to blame. Temporary monopolies can arise naturally and there's nothing wrong with that, but over time they usually fall by the wayside unless a law is preventing that from happening.

Re: AI's economics don't make sense

#193

Post by JohnMakin »

mrandish wrote: post #191
JohnMakin wrote: post #186

Earlier quoted context omitted.

Yea, this is a good article documenting how he was claiming this early on in 2024, that the models were as good as they would ever be and mostly worthless: https://www.theargumentmag.com/p/ais-biggest-critic-has-lost...

Thanks for that link. It's solidified the growing suspicion I've had that Zitron wasn't worth paying much attention to. If I'd read more than 5 or 6 of his posts I'd probably have gotten there sooner. I now place him alongside AI critics like Gary Marcus whose early intuitions seem to have hardened into an extreme and unchanging broken record instead of a more reasonably nuanced counter to the most frothy AI hype. It…

I think to his credit he wasn't always like this, but I consider this the opposite side of the coin of what is commonly called AI psychosis - AI psychosis, I define, as an unreasonable or unrealistic view of AI and its capabilities.

I used to be very bearish, my posting history indicates so - but not quite to the degree zitron did. I was just bearish on all the "developers will be gone by 2026" hype kind of thing, I adopted LLM use as soon as it was available and it has been in some part of my workflow since then, and I have watched it improve, so I took a similar view as you. The breaking point though, is sometime in the last 6 months I believe that something fundamentally changed and they became very good to use in almost every part of my workflow now, which I could not do before.

I dont know whether the skeptic psychosis is a thing innate to certain types of people, or if AI itself kind of encourages it, or a combination of both. Same with the other side of it, the people unrealistic about what it can do, or think it's become conscious, that kind of thing. I can see as I use it more myself, I am kind of becoming more optimistic than I probably should about what it can do, and then I stop myself, usually because something breaks.

But I've seen people, coworkers especially, go through that curve of "oh my god I'm gonna use it for everything" and then hit that "break," where it does something awful, and then jump right on over to the extreme like "this can never be useful." I wish people had more pragmatic views about it.

Re: AI's economics don't make sense

#194

Post by mrandish »

JohnMakin wrote: post #193
mrandish wrote: post #191

Earlier quoted context omitted.

Thanks for that link. It's solidified the growing suspicion I've had that Zitron wasn't worth paying much attention to. If I'd read more than 5 or 6 of his posts I'd probably have gotten there sooner. I now place him alongside AI critics like Gary Marcus whose early intuitions seem to have hardened into an extreme and unchanging broken record instead of a more reasonably nuanced counter to the most frothy AI hype. It…

I think to his credit he wasn't always like this, but I consider this the opposite side of the coin of what is commonly called AI psychosis - AI psychosis, I define, as an unreasonable or unrealistic view of AI and its capabilities. I used to be very bearish, my posting history indicates so - but not quite to the degree zitron did. I was just bearish on all the "developers will be gone by 2026" hype kind of thing, I…

Agreed. Current frontier LLMs tend to be jagged and brittle in ways which are remarkably hard for humans to reason about. They appear so smart in virtually all the ways humans have traditionally estimated intelligence in other humans (concrete knowledge, verbal fluidity, etc) until you suddenly slam full-speed into a seemingly invisible wall. I just tell people to think of them as 'alien intelligences' which are modeling human behavior from external observation while in reality sharing less in common with us than even mammals or reptiles.

Re: AI's economics don't make sense

#195

Post by BosunoB »

csande17 wrote: post #174
BosunoB wrote: post #171

Earlier quoted context omitted.

Thanks for the link. There's not much of an argument here from Ed, though, besides that it's an unusual way to view or report margins. But it's not that unusual, right? If I build a house this year and sell it next year, the house might still be profitable even if next year I'm building 3 more houses, so the company as a whole is still in the red on an annual basis. I mean, I'm not a financial expert but that doesn't…

The first part of the argument is just noticing that Dario is carefully avoiding making factual claims about Anthropic. Like, if the bank asked you if your construction company was profitable, would it be acceptable to respond: "Well, hypothetically, if a construction company sold houses for more than it cost to build them, that company could be considered profitable. It is possible to imagine a stylized model of a c…

Thanks for the genuine response. When you put it like that, though, if all seems a little ambiguous. Like, Dario isn't necessarily lying, and there's no proof he is, and on the contrary, the company continues to get investment from people who, in theory, do get to see the actual numbers.

I guess I don't blame you or anybody for having a deal of cynicism, but these arguments just don't seem very concrete. Like, if Dario was lying or not, he probably wouldn't share the actual numbers, and he probably would propose a "model lifecycle" accounting. And if the business model had potential or not, there probably would still be vast investment in the next model. Zitron has had nothing but cynicism towards AI from the start, and it's his whole shtick, and so these arguments don't seem very credible coming from him, even though they seem reasonable coming from you.

Re: AI's economics don't make sense

#196

Post by casey2 »

milesvp wrote: post #19

Reading this piece, I'm reminded of a podcast I heard some years ago where they were interviewing an early google marketing employee who was talking about the economics of google search. They said they'd done some surveys and concluded that they determined that the average user would get something like $20/year of value, and so that was the most they could realistically charge for search. Meanwhile, they could make s…

And why would they? Google has Gemini even if nothing else happens it is patently obvious that the best current LLM will capture a multi trillion dollar advertising market zero sum. That right there is more than enough to justify Google continuing investment for the next decade since they simply cannot afford to lose that market. I wish we lived in a sane country were you can't invest in your competition but whatever.

Re: AI's economics don't make sense

#197

Post by hollerith »

jcgrillo wrote: post #182
mike_hearn wrote: post #173

Earlier quoted context omitted.

What are you defining as good and successful?? ChatGPT has 800M+ WAU, that seems pretty good and successful to me (not financially but they have time). AI companies aren't selling coding tools. Claude Code is not a coding tool! It's a tool that does coding , which is subtly different. The total addressable market for a coding tool is all developers, which is maybe 25-30M people worldwide, the total addressable market…

I'd like to see one of the major AI players demonstrate a successful exit. I don't think Coreweave counts here, because their long-term success is so tightly tied to the AI bubble continuing forever, which it probably won't. I want to see a strong company emerge from the bubble and start delivering real, sustainable value to its customers and investors. That would convince me it's possible to build a decent product a…

SpaceX plans to IPO and is hoping that shares will start trading in late June.

Re: AI's economics don't make sense

#198

Post by maplethorpe »

dwaltrip wrote: post #187
maplethorpe wrote: post #147

Earlier quoted context omitted.

Can you summarise? I only reached your comment after scrolling past all the others and I still don't have the answer. Is the new data that models are more useful for coding than they once were?

Cost of tokens goes down over time. Like by a lot. And it will continue to do so. Imagine being in 2003 and saying compute costs won’t go down. That’s Ed lol. EDIT: Some quick research on this so you guys have actual numbers: https://gist.github.com/dwaltrip/a037be938d2b5ecc8b8b238736e... . There's multiple separate angles that all contribute to token-costs going down: chip improvements, engineering improvements for…

I read through some of the sources in your link, but they don't paint as clear a picture as you claim. Yes, the cost of inference appears to be coming down, but we so far don't really know why that is and what the largest contributing factors are. With other costs rising (e.g. the rising cost of training, the cost of inference scaling with number of parameters, and reasoning models using more and more tokens), it means we can't yet make any certain claims about long-term economic viability. There just isn't enough data yet.

Taking a look at the sources in your link, the MIRI's "Observations About LLM Inference Pricing"report [0] seems like one of the least biased ones (forgive me if I don't believe everything a16z has to say about the economics of AI).

Some choice quotes from the report:

"Imagine you went to the gas station and the price was $4.00, and you look across the street at another gas station and the price is $40.00 — that’s basically the situation we currently see with LLM inference."

"Overall, LLMs do not appear to be priced like other commodities."

"It's possible that some providers are slightly modifying a model that they are serving for inference, for example by quantizing some of the computation"

"Unfortunately, it is difficult to make strong conclusions about the underlying costs of LLM inference because prices range substantially across providers. The data used in this analysis is narrow, so I recommend against coming to strong conclusions solely on its basis."

Another source you linked, Don't Panic Labs[1], seems to agree with Zitron:

"It is a little unclear as to why the price per token is dropping, and I am still a little worried that the price per token will, at some point, go up."

"According to another graph at Epoch AI, the cost to train a model doubles every eight months. This tends to align with the common wisdom that we are getting a really good deal right now, while everyone is fighting to build market share."

If your inference costs come down due to quantization, that doesn't count, since you're cutting costs by offering a worse service, and there's only so much you can do that before your customers walk away. If your inference costs come down due to subsidization, that doesn't count either, since that obviously won't last forever. If your inference costs come down but your training costs double every eight months, that poses a significant problem for your business. If your argument to that is "training costs won't continue to increase at this rate forever". Well, inference costs won't continue to come down at this rate forever, either.

From what I can tell, there still isn't enough data to draw a strong conclusion either way.

[0]: https://techgov.intelligence.org/blog/observations-about-llm...

[1]: https://dontpaniclabs.com/blog/post/2025/12/02/the-price-per...

Re: AI's economics don't make sense

#200

Post by csande17 »

BosunoB wrote: post #195
csande17 wrote: post #174

Earlier quoted context omitted.

The first part of the argument is just noticing that Dario is carefully avoiding making factual claims about Anthropic. Like, if the bank asked you if your construction company was profitable, would it be acceptable to respond: "Well, hypothetically, if a construction company sold houses for more than it cost to build them, that company could be considered profitable. It is possible to imagine a stylized model of a c…

Thanks for the genuine response. When you put it like that, though, if all seems a little ambiguous. Like, Dario isn't necessarily lying, and there's no proof he is, and on the contrary, the company continues to get investment from people who, in theory, do get to see the actual numbers. I guess I don't blame you or anybody for having a deal of cynicism, but these arguments just don't seem very concrete. Like, if Dar…

FWIW I personally think the most reasonable take is basically that the things Dario says should not move the needle on whether or not you believe Anthropic is profitable. The things he is saying are indistinguishable from the things he'd say if Anthropic was not profitable.
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