Tying AI into globalization, markets, and commodities
It seems as though AI has entered almost every conversation we have had recently. Everyone is talking about it, the tradeoff between safety and capacity, whose job it will take first, what it means for All-of-This.
And I am not qualified to opine at length about anything of those things!
So I’ll include some links and just some summaries of general thoughts I’ve been hearing as I lurk around, specifically focusing on how they connect with financial markets. I want to specifically focus on the interconnection of markets through -
That Letter Saying Things Should Slow Down
This is one of the main arguments around AI right now. A bunch of people got together and signed (or fake signed who really knows) this document saying that ‘we believe things should really slow down right now as we are just blazing into the unknown’ a stance that is to be expected and Eliezer Yudkowsky was like “no actually end it all”
These are the questions they pose in the letter (formatting my own):
Should we let machines flood our information channels with propaganda and untruth? Should we automate away all the jobs, including the fulfilling onesShould we develop nonhuman minds that might eventually outnumber, outsmart, obsolete and replace us? Should we risk loss of control of our civilization? Such decisions must not be delegated to unelected tech leaders.
There is so much to say about this!
Propaganda and untruth - So this ties into a broader discussion that Guy Debord writes about in The Society of the Spectacle, where we have this messy representation of life that is build on the commodification of everything, the image of images.
So like, hello! We are already there! Will AI make things bigger and more confusing? Absolutely. But this is very much cause and symptom - AI spewing ‘untruth’ is not the cause of the meaning crisis we have, but rather a symptom of it. I mean, even the misleading WSJ charts about traditional values are emblematic of how goofy things can get (turns out, answering on the computer vs the phone changes how we answer!) We need to back the truck up and address the propaganda from the root in order to fix this.
Unelected Tech Leaders - Tech has already shaped so much of our life. We have an algorithmic self that’s running around in the ethers of the Internet, and then we have our “real” selves. The tech leaders are already making decisions for us, kind of designing an us that we interact with whenever we log online. The content we consume shapes us.
So basically, all these already exist and let’s be real - slowing AI down isn’t going to stop all of this from happening! People are already open sourcing Chat-GPT, this thing is out of the bag.
Also, as many have pointed out - what the heck are policymakers going to do? They can’t even get the debt ceiling, an arbitrary political football, across the field.
And of course, all of this ties into the broader discussion around globalization and people losing their jobs and AI eventually turning into this beast that eats us from the inside out.
WHAT ABOUT MARKETS: But the thing is, financial markets have arguably grown way too fast too! Markets are 5x larger than the global economy, and a midsize bank that serves a small but loud portion of the population was big enough to topple banking dominoes! So maybe there should be a letter about that!
There’s a sort of funny comparison here to the Industrial Revolution, which Ruchir Sharma touches on for the FT, but that era was absolutely plagued by bank runs. Banks were just blowing up left and right, and everyone was like “ahh” until the Panic of 1907 when JP Morgan screamed and created the Federal Reserve to help stabilize the financial system.
Now, we don’t really have banks blowing up left and right! Because we can’t!
Failure at that level would be catastrophic due to globalization, but now we probably went too far to the other extreme where there is ‘bailout capitalism’ - everything is too big too fail because everything is everything. There is no distinction between functions anymore, and everything is a risk.
Social media risk: In the era of social media, if someone can tweet about it, it’s at risk for completely torpedoing into the ground.
What’s a regulator to do? That makes the job of a regulator much harder. And although the goal of regulation and support is to make the financial system more stable, but this level of bailout doesn’t really do that!
It weakens the foundation because these wobbly dudes are able to stick around - the zombie companies, the zero-rate brethren, all these things that should be done and dusted create serious systemic risk.
As Michael Pettis said:
Increased efficiency in the financial system has long ago stopped meaning increased efficiency in allocating capital productively, and has meant instead increased efficiency in financial flows.
The financial system has become this giant warped thing that inadvertently became the snake eating its tail. It’s not about building a better future, it’s about moving dollars around trying to scrape some semblance of premium. And AI is sort of at risk for worsening this giant warped thing too. The Open AI whitepaper talks about the risks for connecting GPT-4 to other systems and the example that they provide is -
If multiple banks concurrently rely on GPT-4 to inform their strategic thinking about sources of risks in the macroeconomy, they may inadvertently correlate their decisions and create systemic risks that did not previously exist.
Everything is interconnected, and AI only expedites that interconnection depending on how we implement it.
Another shot: But what might be nice about AI is the opportunity it gives us to reexamine our current systems as we look towards new ones.
SVB should be a big lesson here - the Fed saying “oops, we probably should have looked closer at that bank that got really giant really fast” should be “here is how we will handle banks that got giant really fast now and test for interest rate risk”
This is a huge aside, but there is a whole thread to pull on around financial speculation and the role that plays in how our markets function. Like obviously, this is the butter on the bread - people making bets on things is what creates liquidity, so things keep moving and grooving, but we have so many examples (like commodity speculation contributing to Arab Spring) of this being net-bad.
I think there is still a good argument to be made around jobs being taken away by AI. Nails were once 0.5% of GDP, so I think technology is always taking away jobs, right? But just because it taketh, doesn’t mean it doesn’t giveth! I think we will see new jobs and increased productivity from this.
But this technology is kinda different which is scary! This technology isn’t making cars, it’s making thoughts and art and doing things that humans do, and that anthroaormorphization of tech is spooky.
This is going to sound goofy, but this requires us to really think about what it means to be human and to be sentient and to operate the way that we do. I don’t know if AI is going to achieve those things (about half of my friends seem to think so) but maybe we can just base it all on if AI gets the anxiety that we get about the future, since that seems to be a distinctly human quality.
So I’ve been writing a lot about commodities recently, and this is the thing I get really stuck on with AI. It is great and I am excited but we live here on Earth.
There is a world where AI helps us manage our crops and sows our corn in the perfect temperature and provides the perfect water but it is linked to a grid!
But\AI requires MASSIVE computational power and GPUs puffing away. That is a risk!
We need real food. We need copper and steel and wheat and corn and lumber. I think that’s just a good thing to remember. Things like agricultural tech are important! Supply chains are important!
The maintenance of the real world outside of the vast and deep void of the Internet is important!
The Dollar is Not Going Away
This argument recycles every few months, a hair ball that never quite makes it down the drain. I wrote about in April 2022 (twice):
Is the dollar facing its downfall? Kind of?
Everyone likes to say that the Dollar’s reign is going to end soon, and the IMF addressed that in their paper, “The Stealth Erosion of Dollar Dominance: Active Diversifiers and the Rise of Nontraditional Reserve Currencies”.
The main takeaway was basically “like yes, the dollar is declining as a share of international reserves, but there isn’t another currency stepping up? it’s mostly moves into smaller currencies”.
And this makes sense right? This ties into the broader theme of domestic protectionism and onshoring and deglobalization - everyone is going to try and protect their own space… So it’s sort of like - the dollar will remain the Dollar until money fragments into many other currencies - but there isn’t another currency (including the renminbi) that is going to take its place.
When you see people tweeting about this stuff on Twitter, they are being giant goofballs and trying to market a newsletter. Do not listen to them! Anyone who speaks in absolutes about anything lives in fragmented reality fueled by their own narcissism.
As Bob Elliott says:
Views on the dollars future role as the lead global reserve currency differentiate serious, experienced macro folks from those who are tourists and ‘disconnected luminaries.’ The dollar isn’t going anywhere any time soon and it’s wasteful to spend time worrying about it much.
So please! Spend your precious time here on Earth doing something else than demoaning the dollar!
From Lewis Thomas in The Medusa and the Snail
Mistakes are at the very base of human thought, embedded there, feeding the structure like root nodules. If we were not provided with the knack of being wrong, we could never get anything useful done. We think our way along by choosing between right and wrong alternatives, and the wrong choices have to be made as frequently as the right ones. We get along in life this way. We are built to make mistakes, coded for error.
We learn, as we say, by “trial and error.” Why do we always say that? Why not “trial and rightness” or “trial and triumph”? The old phrase puts it that way because that is, in real life, the way it is done.
And a beautiful reflection on lichen - “living reminders that the supreme vital force of life is not competition but interdependence, that we survive and thrive not through combat but through collaboration”
Like a farmer tending her apple trees and her field of corn, a lichen is a melding of lives. Once individuality dissolves, the scorecard of victors and victims makes little sense. Is corn oppressed? Does the farmer’s dependence on corn make her a victim? These questions are premised on a separation that does not exist. The heartbeat of humans and the flowering of domesticated plants are one life. “Alone” is not an option… Lichens add physical intimacy to this interdependence, fusing their bodies and intertwining the membranes of their cells, like cornstalks fused with the farmer, bound by evolution’s hand.
Thanks for reading.
Disclaimer: This is not financial advice or recommendation for any investment. The Content is for informational purposes only, you should not construe any such information or other material as legal, tax, investment, financial, or other advice.
This is so meta ironic because one of the things they are worried about is untruth but yet there is untruth in their own letter! Brilliant!
This is a whole separate discussion and I am just going to focus on the letter
I was gonna address this in a bullet point but it appears to be a conflation between white collar jobs and fulfillment. I wasn’t sure though, so I’ll just speculate over here in the footnote.
Ah Kyla does it again! Steps back and looks around and says “hey, relax people, you’re in your dumb doom-loop again.” Indeed, humans are creative and patient creatures, and though trial and error is a real thing, over time it seldom leads to trial and failure. Best line in the post: “Anyone who speaks in absolutes about anything lives in fragmented reality fueled by their own narcissism.” Go Kyla go!
Love the bit about the Lichens. And thanks for linking to Popova’s article. Excellent read.
And thanks for the calling out the goofballs 🤣 —excellent.