TheStalwart newsletter sketches a scenario where US-China AI competition gets framed like a nuclear arms race, potentially leading policymakers to squeeze capital, labor, and energy from non-AI parts of the economy so they can pour more into data centers and compute.
Joe is waking up to the POST-CONSUMER MARKET thesis still "inflation"… baby steps
In the newsletter, I wrote about one worrying, plausible path.
One in which the AI buildout continues to be seen as a quasi- nuclear arms race against China, and policymakers feel compelled to impose austerity on the non-AI economy to free up real resources for the buildout.
The piece ties this redirection idea to existing inflation worries, though it stops short of naming specific sectors or timelines that would actually feel the pinch.
No government proposals or spending models appear in the discussion, leaving open whether the austerity angle stays hypothetical or gains real traction.
Positive users praised articles on an AI arms race with China forcing austerity measures, calling the pieces great and accurate.
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If you buy the thesis that the AI boom is causing the "third wave" of inflation (as articulated by the WSJ last week) and if you think the US "must win" on AI and you think that a precondition to winning is much more capital investment, this outcome doesn't seem that crazy to me.
@TheStalwart part 1 part 2 part 3 and bits here and there I'm being ironic, to be clear. I guess you're economically literate enough to not find any new insight here
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that would be counter productive, but i fear that it threatening to be won't actually stop the paperclipping
In the newsletter, I wrote about one worrying, plausible path.
One in which the AI buildout continues to be seen as a quasi- nuclear arms race against China, and policymakers feel compelled to impose austerity on the non-AI economy to free up real resources for the buildout.
@Birdyword Lots of people are on the financial repression bandwagon. But when will we see people get labor repression-pilled?
@TheStalwart There's a broad version of this that I think is leaking in to American policy conversations, (not always outright but taken as a given) that China has a general advantage here because of financial repression, which would have been framed as a flaw I think even 5yrs ago.
@TheStalwart I for one am excited to make some new comrades at the barricades when it's time to oppose the repression of labour
@TheStalwart @Birdyword Some multinationals have been on this track for a long time. Apple loved Foxconn/ Honhai's vast seasonal/ flexible work force (i.e. migrant workers w/o houkou). Tesla has spoken glowingly about how its Shanghai workers stayed at their posts (sleeping in the factory) during COVID
@TheStalwart The craziest stuff that the whole thing is hinging so much on so many maybe's or promises/threats which come from the AI companies themselves. At this point one must be confused over what the hell LLMs are even made for, generalist everything magic tools or specialist tools?
@TheStalwart If we’re really in a “race” with China over who can build the most compute then we’ve already “lost”. How many nuclear power plants does China have under construction right now? 12 or so, compared with 0 for us, just AI generated images of SMRs
@TheStalwart Good and interesting points but ... Manhattan Project was a sizeable burden on the real economy (some estimates put spending around 0.5% of GDP) & the rest of the economy was massively throttled to redirect resources to the MP and other major war projects.
@brynstole Yeah absolutely there was all kinds of war austerity underway
@DKThomp Derek
Did you see China's global debt numbers in the latest JPM piece?
They can't just spend an infinite amount on AI with this deficit and this level of debt while also propping up their housing markets / military?
@nachkari Unemployment is fairly low. But people feel bad about job market prospects as it is. And austerity is generally always unpopular (otherwise we would have done it by now, given the inflation)
@TheStalwart Great piece Joe
@TheStalwart Artiflation
@kl3dger It might not be. But a lot of people are acting like it is
@TheStalwart Real risk! But also, seems like if you're climbing an exponential, and people's hedonic treadmills are fairly linear, then you can carve off a quite small (and proportionally exponentially decreasing!) share of capability to keep the population happy
@DKThomp Not only do I not think it’s crazy. I think it’s the highly likely outcome.
@TheStalwart I see no reason to believe that "winning" the AI race would necessitate actively depressing other areas of the real economy. It certainly hasn't shown up so far (investment in other areas domestically is trending up).
Capital rotation is real, so some weakness could occur anyway