In 2006, the only growing sector of the economy was homebuilding. There is no inherent value creation; we use already-created value to invest in a home. If no value is being created, all you can do is to borrow from the future. Entropy says that this can't extend forever.
There is some value being created by AI. What that value is will probably play an important role in how long this can be sustained.
When the Great Recession happened in 2008, to most people it came out of the blue. "No one could have seen this coming," said the cable TV channels. In reality, there were plenty of people calling it out in 2006-2008.
This is the best piece that I have seen explaining what to watch for to see it all happen again with AI.
I love Substack because incredible people take the time to share their insights, and there is an audience of people who read it. This is one of those pieces that is a great investment of your time and effort to read and to understand. Because, sooner or later, this will be a key factor in an economic recession.
Groundbreaker relies on first-semester calculus here.
The basic principle is this. Think of using your car. The distance you travel, your speed, and how fast you are breaking (or stomping on the gas) are three different things, right? But they are related. Speed measures how far you can go in an increment of time. High speed means that you are covering ground really fast; but it doesn't mean that you necessarily are covering a lot of ground (because that depends on how long you keep it up).
You can be going fast, but suddenly a stoplight changes color and you stomp on the brake. You were going fast, but only covered a short distance, right? So even though your speed was high, the distance was short. That is because your acceleration was great. What?? How can your acceleration be great when you slowed down? Because it was "negative" acceleration.
I had a typo as I wrote that paragraph to say that "suddenly a stoplight changes color and you stomp on the gas." In that case, the acceleration is significant and in the "positive" direction. You have positive acceleration. This increases your speed. And you keep going, so you increase your distance as well.
The article's point is to understand what this means for the AI industry. In the case of AI, distance correlates to the total number of data centers and compute. Speed corresponds to how fast data centers are being added. And acceleration corresponds to changes in how fast data centers are being added. When data centers are not being added as fast, that will upset the apple cart of how their financing works. And this is inevitable.
And right on cue, OpenAI proposes a 5% stake by the federal government.
Another brilliant one. I thought "Peak Cheap" was real good and you just raised the bar higher. Thank you, I am learning so much 🙏
In 2006, the only growing sector of the economy was homebuilding. There is no inherent value creation; we use already-created value to invest in a home. If no value is being created, all you can do is to borrow from the future. Entropy says that this can't extend forever.
There is some value being created by AI. What that value is will probably play an important role in how long this can be sustained.
Your analysis is spot-on.
When the Great Recession happened in 2008, to most people it came out of the blue. "No one could have seen this coming," said the cable TV channels. In reality, there were plenty of people calling it out in 2006-2008.
This is the best piece that I have seen explaining what to watch for to see it all happen again with AI.
I love Substack because incredible people take the time to share their insights, and there is an audience of people who read it. This is one of those pieces that is a great investment of your time and effort to read and to understand. Because, sooner or later, this will be a key factor in an economic recession.
Groundbreaker relies on first-semester calculus here.
The basic principle is this. Think of using your car. The distance you travel, your speed, and how fast you are breaking (or stomping on the gas) are three different things, right? But they are related. Speed measures how far you can go in an increment of time. High speed means that you are covering ground really fast; but it doesn't mean that you necessarily are covering a lot of ground (because that depends on how long you keep it up).
You can be going fast, but suddenly a stoplight changes color and you stomp on the brake. You were going fast, but only covered a short distance, right? So even though your speed was high, the distance was short. That is because your acceleration was great. What?? How can your acceleration be great when you slowed down? Because it was "negative" acceleration.
I had a typo as I wrote that paragraph to say that "suddenly a stoplight changes color and you stomp on the gas." In that case, the acceleration is significant and in the "positive" direction. You have positive acceleration. This increases your speed. And you keep going, so you increase your distance as well.
The article's point is to understand what this means for the AI industry. In the case of AI, distance correlates to the total number of data centers and compute. Speed corresponds to how fast data centers are being added. And acceleration corresponds to changes in how fast data centers are being added. When data centers are not being added as fast, that will upset the apple cart of how their financing works. And this is inevitable.
Groundbreaking work!