Tyler Cowen on how AI will reorder economies, schools, and spirituality

Economist and polymath Tyler Cowen challenges Silicon Valley's optimistic projections about AI-driven economic growth. We explore what could slow down AI's economic impact, despite its remarkable capabilities – and where humans find the new normal amidst major shifts.

Speaker names marked ? are inferred from speaking time and the show’s known hosts — they are not voice-verified.

• 0:00Speaker 00

  The AI is already smarter than I am. If there were some kind of like economics Olympics and I was up against O3, O3 would beat me. That's not hypothetical, that's today. What's interesting is how little it matters.

• 0:11Azeem Azhar?

  Did you have a particular oh shit moment when you were using these large language models? Where you saw something that you hadn't expected?

• 0:17Speaker 00

  Real depth, so I use O3 a lot to ask it about classical music. I'll say, well, I'm going to listen to Sibelius's First Symphony. What should I listen for in the symphony? It's remarkably deep, you could almost say empathetic. It just understands the stuff better, I think, than any human source you would find.

• 0:34Azeem Azhar?

  A number of people are going out today saying we're on the verge of a great job displacement.

• 0:39Speaker 00

  I do not expect huge job displacement. There will be an enormous number of new jobs incorporating AI into the routines of established institutions and also building out new institutions. Those new efforts will be a little slow. And in the meantime, a lot of employers will be somewhat skittish about hiring more people.

• 0:57Azeem Azhar?

  You said by 2030, AI could start to fundamentally challenge what it means to be human and cause an identity crisis.

• 1:03Speaker 00

  I think it will change religion. Some people will start to regard the AIs as oracles, in some cases even gods. We're in for some pretty big shocks.

• 1:18Azeem Azhar?

  I am so excited about my guest today, Tyler Cowen. Is he an economist or is he a polymath? I think he is both. He shapes conversations on economics, culture, technology and everything interesting. I have been reading his blog at Marginal Revolution for, I don't dare admit. So wonderful to have Tyler here. Tyler, we're going to talk about AI and the economy and beyond.

• 1:43Speaker 00

  I am ready and we have met in real life, just so our listeners know.

• 1:47Azeem Azhar?

  Yeah, indeed, indeed. So let's get started. I'm just back from a trip to Silicon Valley and I heard a lot of people there talking about the prospect of AI driving 10, 20, 25% of economic growth. There would be this bounty that AI would bring us. And I don't really agree with that. I think you don't agree with it either, but what are those projections getting wrong?

• 2:12Speaker 00

  They're ignoring the all critical role of human imperfections in systems and institutions. So the more powerful AI becomes, and I'm not a pessimist on that, the more it bumps against people who don't want to adopt it, or institutional systems where that does not get incorporated into the workflows. It also hits higher energy prices, constraints from data centers, possible regulatory constraints. The general economic point is that as one thing in your economy gets better, the remaining imperfections become all the more important. So they're not thinking about this like economists. They're used to working in one sector of the economy where, yes, a lot has changed very rapidly. But when you look at healthcare, education, government, the nonprofit sector,

• 2:57Speaker 00

  as you work in these, as I have, you will see the rate of improvement is going to be pretty slow.

• 3:03Azeem Azhar?

  I certainly feel that. In my first book, I talked about the idea of the exponential gap, which is the technologies can go exponentially, but human institutions are linear. They drag us down, as you say, people have different incentives, and there are places where there's just a lot of people that you have to shift and move around. But I'm curious about whether this time might be different. And let me posit something to you, and we can explore this. You know, we know, for example, that we had really meager economic growth, really across the world, until England in the 1620s. And then in England, we cracked a sustained 1% growth rate for decade after decade.

• 3:45Azeem Azhar?

  And it had taken plagues, essentially, to give us better than zero growth. The one exception perhaps was the Dutch, when they figured out trade and moved in the 16th century to a trading economy. But we have seen the economic regime fundamentally shift. I mean, at least once, perhaps twice, right? Well, perhaps the first time was when we moved from into cities, and the second time perhaps is that period in England in the 1620s. Why might we not have the conditions to do that again now?

• 4:18Speaker 00

  You can look at particular self-contained systems. One of the first we had was chess. AI in chess is virtually godlike. AI in programming is getting there. It will take a little while, but it becomes a kind of self-contained system. Maybe parts of graphic design. But all that put together is well below 10% of the economy. And once you have to interact with more complex processes, we need to invent whole new ways of doing things. We may need an entire generation of institutions and firms to die off and have new ones born again that are built around AI at its center. And don't get me wrong, all of this, I think, is going to happen. But it's much more like a 20-year time horizon. And in the meantime, there are all sorts of, you know,

• 5:02Speaker 00

  tailwinds against economic growth. Well, we're aging, right? We have low fertility rates. Our governments are doing many stupid things, especially in my country. All that tends to lower the growth rate. You know, we've had the internet now for quite a while. And maybe measured growth rates are somewhat higher because of it. But even that, you can debate. There are people who'd say, well, productivity still hasn't come up from the internet. It just takes much longer than people think. Electricity took 40 to 50 years. I do not think this will be that slow. For some obvious reasons, it's much quicker. It's just on tap, on your phone, on your desktop, wherever. But slow it will be.

• 5:41Azeem Azhar?

  Yeah, I mean, I'm very sympathetic to that, right? So electricity takes 40 years from the Pearl Street generating station to really being noticeable in US productivity statistics. I think the PC is a bit quicker than that. It's a 20, 25-year timeframe. So we could imagine AI being faster. At the risk of us agreeing too much about this, I'm going to push hard on a couple of points and maybe argue as to why it might be different on this occasion. So you talked a lot about the institutional component to this, right? The fact that the institutions adapt very, very slowly. And, you know, we sort with something as simple as the typewriter.

• 6:24Azeem Azhar?

  It took some 20, 25 years for the typewriter to make a difference. But I wonder, could it be the case that a generation of managers who grew up in the shadow of Clayton Christensen's book, The Innovator's Dilemma, for whom the word disruption has been part of their career, capital markets that move more freely, the scale of the demand pull from consumers for this, the fact that governments may be doing many stupid things but also seem to be resigned in some cases and excited in other cases to build out the infrastructure as quickly as we can, does that provide a tailwind that might see this moving quicker than that 20-year period?

• 7:06Speaker 00

  Well, I don't think our managers and consultants and capital markets are also great. They're probably the best in the world in the United States, and there's still plenty of mediocrity there. When was the last time the US built a new nuclear power plant? What are the prospects for that in Britain? In both countries, it's looking up, right? That's good. Probably at the moment, if we start one today, it takes us 10 years if we're lucky. That's just a simple way of showing how much time things take. That's a self-imposed burden. I would call it an unforced error. South Korea, China can do it much more quickly, and it still seems safe. But I just don't think we're going to completely get our act together all at once. I see no signs of that happening. And if you look at the Trump administration,

• 7:49Speaker 00

  all these tariffs, you know, they may or may not stick, it depends on the courts, but they slow down trade in the materials to help this happen more quickly.

• 7:57Azeem Azhar?

  Right. And I think that that's a really important point that is sometimes lost in Silicon Valley, which is that we're embedded in such a wide system where we've made assumptions. But in reality, a globalization's contribution to economic growth has been so enormous over the last 70 years, it probably dwarfs that of technological innovation. It's an institutional innovation that brought with it lots of technology innovations like supply chains and containerization and so on. And so deglobalization is a really big deal, right? It's a really, really big and distracting deal for companies and governments to have to deal with. So I'm talking your

• 8:38Azeem Azhar?

  Again, that's how persuasive you are. I'm going to push again. Let's see if we can get this going faster. What about the notion that what we've actually seen in the last year or so has been an unlocking of desire to make those types of investments that the US and the UK have found so hard, like nuclear. So the US electricity system hasn't really grown since the days of Bill Clinton being in power. But now we've got a demand signal and that demand signal is driving innovation on the one hand from SMRs and solar and batteries and even fusion. And on the other hand, it is pushing the states and federal government

• 9:21Azeem Azhar?

  to say, we need to build this, we're going to take regulations out. Could that create a storm that drives things a bit quicker?

• 9:30Speaker 00

  Well, in this regard, our two countries have very different problems. We have extreme federalism. To build things out, the grid, you need approval from so many state and local governments, from the feds, from various environmental review boards. Again, it just takes years and years. Cleaning up that process takes years and years. I've heard it estimated that to get rid of a single federal regulation can take two to three years. Again, I'm all for doing that and I think we're going to do a lot of it. But it will be slow going. Now, in the UK, you have far less federalism. You have a bigger fiscal crisis. You have a talent crisis. For some set of reasons I can't explain, you just don't seem to be able to get your act together to do a bunch of things. I don't know why.

• 10:13Azeem Azhar?

  I mean, I don't know what holds us back. I mean, there tends to be a little bit of a sense of malaise around the UK peppered by real dynamism in sector. So, you know, the technology startup sector keeps rolling up its sleeves and saying, let's go again. But it is dragging behind it a country that has been somewhat stripped of its muscle and its capacities over the last 15 years in particular. And we have a particular problem with our administrative state. That somewhat gets in the way of the kind of growth that, again, some of the people coming out of Silicon Valley will talk about. But we do also see this sort of wide variety of estimates of what AI would do from some of the investment banks suggesting,

• 10:56Azeem Azhar?

  you know, a couple of points to GDP and Darren Assamoblu, the Nobel laureate, being much, much more tempered in his estimates. Where do you end up and why do you end up there?

• 11:06Speaker 00

  The very best estimate we have is that which is embedded in market prices. And there are plenty of market prices that indirectly give signals about what will happen. I would say if you look at currencies, equity prices, real interest rates, levels of volatility, really anywhere you care to look, the world looks pretty normal, at least for our two economies. Weird uncertainties surrounding Trump and tariffs, it's not related to AI. But people in the market who know these AI arguments, they think there may be an effect. Nvidia obviously is a pricey stock, but they don't see the world being radically overturned anytime soon. And I think they're correct. If you think they're wrong, you're very able to go out there and bet against them,

• 11:50Speaker 00

  whatever your view may be. So far, the risk capital, people who have real money at stake, are essentially agreeing with the position the two of us have set out.

• 11:59Azeem Azhar?

  I mean, my my number is is sort of a two and a half ish percent. So a kind of growth of about half a percent on top of wherever we might be. But there are so many other confounding factors like trade war and political instability that it's hard to imagine. But even that is quite significant if you think about the scale of today's modern economy. What that means is a doubling by 2050 from today.

• 12:23Speaker 00

  We're agreeing too much again. The exact number I've been giving people is an extra half percentage point a year, surrounded by high variance. And again, over time, that is a big, big deal, and I'm fairly convinced it will be. But in any given year, you will notice all sorts of anecdotes like, oh, my friends are using GPT as a therapist, which may not have major economic impact, but it is a sign things are changing. And then in some funny way, over a 20 year period, that adds up to a very different world. And that's what I think we're in for.

• 12:53Azeem Azhar?

  We are going to get into that point because you wrote a great essay with my friend Avital Balwet from Anthropic, and I want to explore that. I just want to ask one one more thought on the economic question, which is a number of people are going out today saying. We're on the verge of a great job displacement. We've heard Joshua Benjio talk about it. Dario Amadai, who's a CEO of Anthropic, has been very vocal. A chief economist at LinkedIn had an op ed in the New York Times saying particularly entry jobs in white collar spaces are coming under pressure directly here and now. What do you think huge job displacement means in this context? What would for you feel like huge job displacement?

• 13:37Speaker 00

  I do not expect huge job displacement. There will be an enormous number of new jobs incorporating AI into the routines of established institutions and also building out new institutions. Now, I do think what will happen is those new efforts will be a little slow to get underway. And in the meantime, a lot of employers will be somewhat skittish about hiring more people because they'll say, well, ideally, I like to keep workers for five years. Maybe this hire will be obsolete because of AI. So for now, I wait. Reluctance to hire new people will outpace the creation of new jobs through AI. I'm not sure it will be noticeable in the aggregate numbers. I think it will be noticeable in job market vibe. I don't think many people will be fired.

• 14:21Speaker 00

  A lot of jobs will change. A lot of people will be replaced by others who have learned how to use AI. But I don't think we'll see a much higher rate of unemployment, at least assuming we do not make other stupid mistakes when it comes to macro policy.

• 14:35Azeem Azhar?

  Right, but let's unpick that at the moment because of course there is a high rate of employment at the moment in the US historically. So you've got this, you have this tight labour market. And as an economist, you might look at an aggregate level of unemployment and say it's not really moving in a direction that is nerve wracking. But I suppose one question, though, is in this shift or the gradual destruction or the slowdown in hiring of jobs, does that have particular geographic ramifications? And is the creation of the new job something that takes a little bit too long to evolve, right? That effectively the economy, of course, can

• 15:16Azeem Azhar?

  Absorb and create all sorts of new jobs, but that's dependent on entrepreneurialism. It's dependent on businesses changing the way the way they hire. So I see these two little gaps emerging, one of which is that there may be places in the US and of course the UK and other countries where the slowdown in hiring or whatever limited layoffs there are are quite concentrated. New jobs are created elsewhere and they take a little bit of time and that creates a sort of uncomfortable gap.

• 15:43Speaker 00

  I agree with that. I think parts of each of our countries where you have a lot of young, recent college graduates entering the market for the first time. That's where the negative impact will be the strongest. I have a decent sense where that is in America. You would know better about the UK, but that's exactly where I think it will show up.

• 16:01Azeem Azhar?

  So where are those hotspots in the US?

• 16:03Speaker 00

  Well, there's plenty of people, say you graduate from Berkeley, UC Berkeley, which is an excellent school. A lot of those people want to stay in the Bay Area and I'm not sure they'll all be able to get the jobs they're looking for. And that will for them be a problem. Again, I'm unsure how much it will show up in the aggregates, but that's a place there's an outflux every year. They want to hang around. They're not for the most part looking to move like from Berkeley to Nashville. And it may be tough. The fact that we're hiring more carpenters, more gardeners, more salespeople, whatever. Because we have more wealth, again, could lag behind those negative impacts and I expect they will.

• 16:40Azeem Azhar?

  Are we even measuring the right thing with with GDP as we move into a world with AI and there's a greater substitutability of human labor for machine labor? I mean, there has been a longstanding debate amongst economists that, you know, in a digital world, replete with intangibles and services and computers that get better every year but stay the same price. That GDP isn't quite capturing the purpose of the economy, but there seems to be such institutional inertia behind it. It's the the measure we use. Are we even talking about the right thing when we talk about economic growth in GDP terms? Or are we just talking about the convenient thing?

• 17:17Speaker 00

  I think GDP is an underrated metric. If you put aside the Gulf oil and gas monarchies, where people want to live is where GDP is high and the intangibles. Are pretty closely correlated. Like, take the ten countries you'd most want to be born into. They're all high GDP countries, right? Now, you could say, well, Singapore is a bit rich and they're a bit less happy. Maybe, you know, Finland GDP is a little lower, they're a bit more happy. I'd agree with those points, but I don't think the differences are that large.

• 17:45Azeem Azhar?

  So you don't think that in a world where we may see increasing share of national income moving towards capital, right? Building on this trend that we've seen in the US and the West over the last fifty years, where effectively national income has about ten points of it has moved from labor to capital. Does that trend continue in an AI world? And if it does, does it create issues?

• 18:10Speaker 00

  There are a lot of different issues in what you raise. The previous trend, it depends on whether you count Mark Zuckerberg as labor or capital. If you count as labor, but just a very well-paid laborer, there hasn't been much of a change. But I would say it's not clear that AI will concentrate more wealth in the hands of capital. The AI could easily become commodified. We have a lot of open source. There's potential competition from China. Those companies right now are not making money. There's a number of papers that show those who benefit from the AI service itself are often lower achievers, who now can write a good essay or write a good letter. I'm not sure that's how it will remain as time passes. I'm not sure it goes in the other direction.

• 18:53Speaker 00

  Sometimes I think the real winners are people who have bought high-quality land, because AI may substitute for capital and/or labor, but it really cannot take the place of land. But I would just have a high degree of uncertainty as to where the incidence will fall. We should worry about this, but I would say not leap to conclusions.

• 19:11Azeem Azhar?

  Yeah, well, that's back to the future if we're back to land. Actually, on your point about, you know, AI being a skill equalizer. A lot of the early studies that came out, looking at large language models from people like Eric Brynjolfsson and now and Zhang and others did show that. They showed that, you know, people in the third and fourth quartile got bumped up to median performance. But quite interestingly, more recent Studies have shown that if you look at the very, very high performers, the absolutely virtuoso in their field, they somehow are able to use the tool as a tool and achieve greater heights.

• 19:48Azeem Azhar?

  And I, I think I, I see this when you start to see the instructions for the large language models that, you know, the Claude and the chat GPTs get leaked and they've got a prompt and they have the system prompt for, uh, for these, these things. And they're 10,000 words long, they're incredibly sophisticated. And I look at my prompts, which are two lines long, and I think there's no way I could get to that degree of sophistication. And, and that is about perhaps superstar talent being able to take advantage of the technology. And, and we see this in other digital markets, you know, so I can make music now as anyone can, but we have a greater degree of concentration amongst the superstars. And perhaps we did 50 years ago.

• 20:29Speaker 00

  I agree with that too, but that does not negate the fact that poorer people, they now have free excellent medical advice, free excellent legal advice, free excellent therapy. So I suspect, and again, this is a guess, but people at the bottom of the earnings ladder and education ladder, and then the superstars at the top, they will be the ones that benefit. And on net, it's probably egalitarian, but with both effects.

• 20:53Azeem Azhar?

  Yeah, it's a complicated one. So let's turn to those social effects for, for the moment. You wrote a great essay in the Free Press with Abigail Balwitt about AI. And, you know, what's interesting about what our discussion about the economy is that we've ended up in this place saying, you know, it's important and it will take, but it will take time, right? We were imagining that time in 20 years, 25 years, but the pace and urgency in that essay in the Free Press was quite different. And I wanted to reconcile those, you know, you, you essentially you said by 2030, AI could start to fundamentally challenge what it means to be human and cause an identity crisis. As we lose our position to these entities that could be smarter than us.

• 21:34Azeem Azhar?

  And I'm just curious about how we reconcile the first part of our conversation with what was quite, quite an impactful essay.

• 21:41Speaker 00

  Well, the AI is already smarter than I am, even if you just restrict it to economics. If there were some kind of like economics Olympics and I was up against O three, O three would beat me. That's not hypothetical. It's not the future tense. That's today. What's interesting is how little it matters. So demand for my services insofar as I wish to supply them, it's up, not down. And that's what take a long time. But I would make the side point, that's a co-authored essay and we each wrote it. And Abital thinks the pace of change will be much faster than I think it will be. So the essay you could say is a weighted average of our two opinions. I'm fine with doing things like that, but she does think it will be faster.

• 22:22Azeem Azhar?

  I mean, she's in the heartland of Silicon Valley, right? And, and you know, one of the things that I found fascinating actually is the speed of iteration within the valley. I haven't seen it as febrile and excited since the ninety seven, nineteen ninety eight period. But based on much, much more knowledge of how to build companies, how to iterate, how to test things. And the, the speed of learning there is really singing to San Francisco's ability to, to agglomerate all of this incredible talent. And so it's interesting to me that the people who are in a way best positioned to observe this change happen and are surrounded with the resources that allows them to take advantage

• 23:05Azeem Azhar?

  of it, feel that challenge of meaning coming towards them faster than perhaps you or I do.

• 23:10Speaker 00

  That's absolutely true. And I largely agree with their predictions about the pace of AI improvement. But when it comes to the actual world, I feel they have under invested in the social sciences and history. And I've had long extended back and forths with these people for now, a few years. And I'll stick with my current view. I feel I win those debates.

• 23:31Azeem Azhar?

  What is the metric or the number, the indicator, the data point that you would have to see to think, oh, I got this wrong?

• 23:39Speaker 00

  Well, if I saw, for instance, real interest rates make a big leap upwards for some reason other than higher budget deficits, I would think, oh, the market's telling us something. And then I would change my mind. Real interest rates are up a bit. It's probably mostly because of higher US government borrowing. A modest amount of it is probably from higher capex expenditures coming from the AI sector. And that does reflect higher growth prospects for the future. It just does not seem extraordinary in terms of, you know, predicted impact.

• 24:09Azeem Azhar?

  So unpack that for the non-economists who are listening. Why would a leap in interest rates signal some kind of a change?

• 24:17Speaker 00

  Well, if there's much higher productivity, whether coming from AI or something else, people want to invest a lot more money in whatever is being productive. So partly they're borrowing money, the demand for capital is higher, the opportunity cost of capital is higher because it could be used for more energy for AI or for the AI itself, and all that will mean higher real interest rates. And I expect that to some degree. It just seems to me within a quite manageable level of change.

• 24:44Azeem Azhar?

  Yes, and there are so many other confounding factors, as you say, debt servicing, the ebb and flow of the rest of the economy. So we haven't seen what you would describe as a shift to a new interest rate regime just yet. So that's the indicator that we might want to look out for. But come back to this question of O3 being smarter than you now. Did you have a particular oh shit moment when you were using these large language models for the first time in the last few years? Was there a moment where you saw something that you hadn't expected?

• 25:15Speaker 00

  Well, the first GPT-4, that was my first moment. It's like, whoa. Now, much earlier, I had moments, you know, in my history with chess, which is extensive. I saw the advancement of AI in chess and I had many moments much earlier, you know, even before Deep Blue. But, you know, thinking about large language models, GPT-4, O1 Pro, and now O3 have been my biggest moments. And two of those are quite recent. GPT-4 now is a little, you know, two plus years ago. But the other two are, you know, months ago.

• 25:46Azeem Azhar?

  And what was it that you saw in them that made them that moments of revelation?

• 25:52Speaker 00

  Real depth. So I use O3 a lot to ask it about classical music I'm listening to. And I'll say, well, I'm going to listen to Sibelius's First Symphony. What should I listen for in the symphony? It's remarkably deep. You could almost say empathetic, thorough. It just understands the stuff better, I think, than any human source you would find. There are some hallucinations. There are not actually a problem with that kind of query. Well, well beyond what you would expect. And then if you count breadth, I mean, they can answer almost anything. You could ask it about Turkish economic history in the 13th century and you get something better than what you'd get from all but a handful of humans. So I think

• 26:32Speaker 00

  right now, asking O3 is not quite as good as asking the world's leading expert on a topic. But it's better than asking like a tenured professor who might work in that area who's at a top 10 or 20 school. And that's really impressive. So it's kicking our butts.

• 26:48Azeem Azhar?

  But that's a pretty wild comparison. But let's think about who are the types of people then for whom this is both revelatory and emancipating? I mean, have you noticed that the types of people like you perhaps who lean into this and greet it with a degree of curiosity and joy compared to those who might see it and say, this is the end of days?

• 27:11Speaker 00

  Well, it's easy at my age. I have no plans to retire. But if I had to retire, I could just do so. So I don't feel I face any risk. I can experiment with it, try new things without a truly significant downside. But if I were, say, 20 years old, 25 years old, I would be highly uncertain about my future career plans. I wouldn't be sure what to do. I would do what you probably advise people to do, which is to get to know the AIs and stay flexible and then just see. But that's a somewhat uncomfortable position to be in. Even if someone tells you, well, the world will have a lot more wealth and you'll live to be 97, so don't worry. It's still an uncomfortable position to be in.

• 27:49Azeem Azhar?

  Yeah, no, it's definitely that. I actually add a third thing, which is find something you really like and really just care about it. It just doesn't, it almost doesn't matter what it is. It doesn't matter whether it's philosophy or DJing. It doesn't matter whether it is calculus or cooking. But that's something that you, you really, really care about and that you can anchor towards. And I think it's a, it's a relatively perhaps a new way of thinking for people who are in their late teens and early twenties, because the schools are, have really been thinking about how do we position them to get that corporate law job or that job in the consultancy or you know, either you're fitting everything to get into that, into that box. And now you're being told that box may not be there, it may be looking for something

• 28:30Azeem Azhar?

  else. And I think one thing that that matters at this moment is, well, two things, can you work with these machines? You have the tools to do that. And do you have a sense of the direction in which you'd want to point them? Because they're extremely powerful. So that has to come from your passions.

• 28:46Speaker 00

  Strong agree. The whole system is set up to incentivize getting good grades. And that's exactly the skill that will be obsolete. Yet our institutions of education, I don't see that they're changing at any level whatsoever. There's a lot of hand wringing about how do we stop people from cheating? And no look at what should we actually be teaching and testing?

• 29:05Azeem Azhar?

  Yeah, I I think there's some early evidence, I wouldn't call it an evidence, there was a meta survey that was published in in Nature as an open preprint, so it hadn't gone through peer review, looking at learning outcomes across a range of other studies, right? That's what a meta study is, which had looked at people using GPTs to support them. And it had found some good examples of behaviors that led to good outcomes for students. But it does require a real pedagogical shift. And that kind of pedagogical shift means, you know, institutional approval, it means finding the resources and the capacity as a as a teacher or lecturer within a department to be able to do that. And all of that is,

• 29:50Azeem Azhar?

  I suspect, under strain, not just in the US as it is in the UK, but in other parts of the world.

• 29:55Speaker 00

  Exactly. And it means admitting that homework is obsolete, that the easy ways of grading people, like computer graded exams, they're obsolete. Faculty teachers need to be more like mentors, that can be rewarding, but it's very time intensive. It's not something you can do by formula. It's not something an okay teacher will even necessarily be very good at. But our ability to reshuffle the personnel, the procedures, we just seem to me really quite frozen.

• 30:22Azeem Azhar?

  What's the cost of not unfreezing that block? I mean, is it about national competitiveness? Or is it about something a bit deeper?

• 30:32Speaker 00

  Well, it's both, but I think we're producing a generation of students who will go out on the labor market and be quite unprepared for what they're expected to do. And then as AI progresses yet further, maybe they'll just retrain. But you know, you spent however many, you know, four, however many years in college, that was the time to do it. And we taught them things that in a way were counterproductive even. So some of it is, yes, output will be lower, but I think many of the highest costs will be psychological. People feeling they do not fit into this world and they'll be somewhat correct.

• 31:04Azeem Azhar?

  It plays into a number of stories and that we've, you know, fictions that have come through over the years. There was a TV series called Humans about a decade ago. In Humans, we had lifelike, very realistic humanoid who would help us around the home. And they were so good at everything. And one of the characters was a girl in a teenage girl called Matty, very bright. And the mother said, why aren't you studying? And Matty goes, well, what's the point? The robot will always be a better doctor than me and more patient and better at diagnosing and better at delivering care and better at the empathetic side. And it really in a way encapsulated a decade ago, some of what you've described now.

• 31:46Speaker 00

  Yeah, I don't doubt many people will use all this to become lazier, but also a lot of other people will learn like never before. And one of my hopes is you have places such as most of Africa where there's immense human curiosity, but major institutional obstacles and that something like open source AI on mobile devices will give some subset of these people an incredible education, maybe in some ways better than what a lot of us will be getting. And they'll do a kind of leapfrogging. We don't know that yet, but I think there's quite a good chance that's what we'll see.

• 32:18Azeem Azhar?

  I mean, the argument might be that we are suffering from a challenge of affluence anyway. It's been meandering for decades and it has been also embedded, certainly from the perspective of the West with trying to find a large story after the end of the Cold War and the collapse of the Soviet Union. And I think it does show up. Some of the data. So there's data from two market research companies, Edelman and Ipsos, which shows that particularly in the Anglosphere, people are skeptical, nervous and not excited about the prospects of AI. And if you go to East Asia in particular, those numbers are entirely inverted.

• 32:59Azeem Azhar?

  You know, seventy percent of people are excited and and optimistic about the prospect. And and I think that it's already being reflected in those expectations. Maybe it's as simple as we may have more to lose, right? Because we've built all of these service jobs based around, you know, white collar and moving PowerPoints around. Uh, but but it may speak to a a deeper question of of purpose.

• 33:22Speaker 00

  The biggest problems might come in the European Union where there's active hostility. At least your government will make noises about wanting to do things. I'm not sure that will be followed through on as it goes through the bureaucracy. Uh, but European Union, I don't see progress there. They don't have their own significant models. There are numerous laws that make AI much harder to do, or even like technically illegal. They need to get their act together.

• 33:47Azeem Azhar?

  There's a number of uh institutional challenges in the European Union. One is that getting things done, right? Getting power, which getting the data centers uh is particularly difficult. It doesn't have sufficient governance competition. So although it's sort of sort of federal, there's so much harmonization. You can't really have entirely different regimes the way you can often find in the in the US. You know, the Texan power system is completely different to the one in in New Hampshire or in in Virginia. And and that provides for the kind of competition that allows us to to sort of see what works and and what doesn't work. And I think there are also going to be issues around demographics and there'll be issues around the balance between pensions and labor protections.

• 34:30Azeem Azhar?

  And and all of that creates, I think, what is quite a messy environment. I suppose that the sort of one positive that that Europe has is in a way it's woken up, right? It's woken up to hard power. It's woken up to needing to have energy independence and energy sovereignty. And that might mean, you know, shovels going into the ground and things really being built and factories being built, which. Historically, it's been quite a good thing for economies.

• 34:54Speaker 00

  We'll see, but you know, for instance, I don't doubt that many European countries will move to 5% GDP for defence spending, but they might do it in a quite bureaucratic way that rewards existing interest groups rather than being ready for the future, and they consider it another form of fiscal policy. And in essence, barely end up being safer. That's the track they're on now. Now, they may get off that. But I'm far from convinced they're actually going to be able to defend themselves.

• 35:22Azeem Azhar?

  Yes, I mean, let's see, would be would be my view. I mean, I'm such an optimist. I say they've really moved in the six in six months. Let's see. Let's see what happens over the next six months. You know, there are some signs and signals. But I want to come back to this idea of that, you know, the global centre might might shift a little bit. You talked about Sub-Saharan Africa, which of course has this sort of enormous youthful demographics and very low human capital levels right now. Could increase significantly once people have these tutors and assistants and really all of humanities collective learning at their fingertips. And at the same time, we have this sort of enormous pole emerging in the Gulf between the UAE and Saudi.

• 36:04Azeem Azhar?

  And and building out infrastructure and capacity and capability, really from, you know, the energy to the data centres, to the universities upwards. Are there historical analogies that we could we could turn to to think? What would the impact of that be? You know, might that construct a new semi-central pole? In the world? And if it did, what would its effect be?

• 36:27Speaker 00

  The Gulf stands a good chance of being one of the most important places in the world. And I don't just mean for its oil, for its data centres, and it's possible the smartest entities within a few years will be based in the Gulf. Now, who controls them? Who has plug pulling rights? What leaks out to China? It's all very complicated, but there's a very good chance that will happen. And you asked for historical analogies. I would say one is England. As you well know, England was a backwater in world history for most of the millennia. Number of reasons why that stops, but coal is a big part of those reasons. And England then becomes arguably the most important nation. So instead of coal, maybe now it will be AI. And it could be the world will have a third or maybe fourth AI power.

• 37:12Speaker 00

  US, China, Saudi and UAE. That would be a very strange setup, but it's quite possible.

• 37:18Azeem Azhar?

  Have you been out there much?

• 37:19Speaker 00

  A few times. I wouldn't say I'm an expert on the region, but I follow it. It's one of the most under-followed developments in the world right now.

• 37:28Azeem Azhar?

  It's absolutely wild. The level of commitment, what we probably read in the papers are these headline numbers of, you know, hundreds of billions of dollars, perhaps even more. But the commitment runs much deeper than that because it's embedded in the leadership and the leadership has more control, shall we say, on the regulatory structures and outcomes. And the ambition, one of the things I've noticed in the years I've been going there is the ambition level rises and the talent of the locals who I meet rises and rises and rises. And there is a real commitment. They tried 10 or 15 years ago with a few initiatives to build digital businesses in the Gulf and they didn't, they didn't work particularly well.

• 38:12Azeem Azhar?

  But they're coming back again, right, with on the back, off the back of learnings. So I also, like you, think this is one of the most exciting places for the coming, you know, 10 or 20 years and really curious about what it unlocks. There's also the advantage of geography because a data center in the UAE or in Saudi is within 100 millisecond ping of 2 billion people in the world. That means it takes an internet packet, 100 milliseconds to get there and to come back, which is fast enough for an interactive service. And so you, you actually find yourself in the center of the world, able to address markets in Asia and markets in Africa with digital services.

• 38:50Speaker 00

  They really mean it. And I'm sure you know that UAE is buying ChatGPT plus subscriptions for all of its citizens. So the political base there will be very well versed in what's going on, probably way ahead of the United States. So I would just recommend to everyone, follow it. And also go there. It's a wonderful visit.

• 39:10Azeem Azhar?

  It is fun to visit. I want to ask about about this human question as well. Let's come back to this issue, this moment. You know, you said, oh, well, you know, you've got a lot of experience and the questions don't affect you as much. Sam Altman said something a few weeks ago where he described how different generations were using ChatGPT. And, you know, people like me use it as a super Google search plus sketching out on bits of paper as I do my thinking. And he described that, you know, the the younger cohort, which I guess was people in their sort of early twenties, use it as a perma companion for, you know, not to not to figure out Turkish economic history in the thirteenth century,

• 39:53Azeem Azhar?

  but to figure out the status of their relationships or make sense of their of their feelings. That, to me, feels like a more profound change than speeding up a particular bit of a company's processes.

• 40:06Speaker 00

  I think it will change religion. Some people will start to regard the AIs as oracles, in some cases even gods. What we view as the uniquely human qualities will evolve. Those matters are all hard to predict, but it seems obvious we're in for some pretty big shocks. Yes. Now, I don't use them for that, but I'll play around with them for those things, just to understand what other people might be doing. But I very much use them as an infovore would. And it also knows me. Like, I was in Mexico recently. I've written a lot on food and dining out. And I say, pick a restaurant for me where Tyler Cowen would want to eat. And it knows what I want. Like, I'm delighted it knows me. That, for me, is just a thrill. I can refer to Tyler Cowen and it knows exactly who and what I'm talking about.

• 40:51Azeem Azhar?

  Right. And is that just because you're well known or is it because it now knows you from your interactions?

• 40:56Speaker 00

  It's because I have a lot of writings online that it has read, including extensive writings on food. So I now do things, I call it writing for the AI. I write things because I want the AI to know it about me or know it about the world. And very often, they're my number one audience, not the humans. And they're a very patient audience. And they have great background context. Like, how can you not write for the AIs?

• 41:18Azeem Azhar?

  This is quite interesting because. Technology has this strange characteristic, which is that you know, technology over time becomes cheaper, it becomes ubiquitous, it becomes part of our lives. But it does so without any kind of democratic mandate, right? It just sort of makes its way in into our lives and we get shaped by it, right? Our our interactions, what we value, our norms and our practices over the decades and centuries change as a consequence of this. One of the things with AI today is that it's kind of coming from one place. It's coming very, very quickly. Nearly a billion of us have voluntarily agreed to use ChatGPT regularly, right? With no mandate to do so. But on the other hand, it is starting to change behaviour.

• 42:00Azeem Azhar?

  What is the opt out that a citizen has if they wanted an opt out? What's that actually look like over a ten or fifteen year period?

• 42:08Speaker 00

  I think it will be difficult over time. Now it's super easy. But what we now call websites, I suspect will be configured to work with the AI more than work with you. For a long time, there'll be some kind of dual system, but it will be like not having a mobile device, which you can do today still. But it's mildly inconvenient and your friends expect you to have one. Yeah, you could do, uh, you know, the rural log cabin thing. Some people do that anyway.

• 42:36Azeem Azhar?

  I imagine a kind of a cognitive group, a group who say, we want to experience being human as human. We want to feel the grass under our feet. We want to feel the sweat. We want to feel our brains ache when we think through a problem. And we don't want to engage in a consistent way with this world. And we see there are subgroups around the world that do that. But I also suspect that many of us will will choose to do that as part of our highly AI infused lives, right? That we will choose to say, we're going to go on that hike and we're going to take a minimal AI support with us. Uh, we're going to.

• 43:15Speaker 00

  Minimal. That's funny though. Minimal. Like it'll tell you more if you wanted to. I visited the Amish multiple times. I'm not tempted. I want to live to ninety seven and whatever else. I don't think many people will do this. I think it will be like the Amish, where yes, some people do it, but they will be regarded as highly unusual outliers.

• 43:35Azeem Azhar?

  Understood, right? Slightly outlying, but there is, you can see tendrils of this emerging. I mean, I, I put the, you know, the growth of ultra marathoning and extreme vacations, the rise of the vinyl record as a, as a, as a set of signals that people say that inner monks taking advantage of the infinite celestial jukebox that is Spotify. I also want to have some processes that are a little bit more tactile, a little bit more visceral, maybe a bit more emotional and, and you know, by the numbers, much more, much more limited. You know, I think we're giving signals of the, the sorts of things that we'll want to hold on to, not because they're logical way better, but because they help ground ourselves

• 44:18Azeem Azhar?

  in a world that will be spinning at nano speed a- around us.

• 44:22Speaker 00

  Oh, I agree. And I think we do see that quite a bit, as you mentioned. But I think it will be a barbell solution where maybe one month a year, you're off in the Thai jungle trekking and most of the rest of the time you're immersed in your AIs rather than the Amish. Or like Christian scientists, they refuse a lot of healthcare dwindling in number. A lot of the Amish become Mennonites, a lot of Mennonites, you know, marry Christians and are not that Mennonite anymore. So that's what I expect. The, the gains are too large.

• 44:51Azeem Azhar?

  So this is a process, of course, that will play out likely over decades rather than years. I mean, these processes tend to. And we talked about at the beginning of this discussion that we have this violent agreement of a 20-year shift in the economy. But it also feels like there are lots of decisions that could be made now or at least engaged in or participation that could happen. So what does good look like in that frame? You know, should people? One alternative is we just sit and we do what we do. We enjoy the better AI bots. We enjoy better recommendations of music because the, the algorithms get better. And we just let the competition in the market take us somewhere in our elected representatives.

• 45:36Azeem Azhar?

  But on the other hand, we're saying this is kind of quite a fundamental change. So what can we learn either from history or from the people you've spoken to? About what engagement in this means for people who are living their day to day.

• 45:51Speaker 00

  Think we learned from history that no one is ready for a fundamental change. Britain had an industrial revolution. Different things were done with the Poor Laws, trade unions. Arguably, those were a good idea, but they really didn't matter that much compared to the overall scope of the change. I think that's the important point. For me, a good immediate future is that China does not win this race. And also that whatever we erect in Saudi and UAE, that it is secure and orderly and works for everyone. That's a hard thing to manage. This is, these are unprecedented events, like none of us know what we're doing. They're not really experts you can consult in a way. Well, the great thing about AI is no one can be that far ahead of you. You know, it's not like all these other sectors of the economy or fracking.

• 46:36Speaker 00

  There are people out there who are decades ahead of you in fracking. But in terms of current AI models, you start off in a funny way, being very close to the frontier, even though it's intimidating.

• 46:46Azeem Azhar?

  So fundamentally, though, the thing that you believe has to be defended are some of the core norms that have emerged in the West that found the basis of both the written constitution and unwritten constitution countries. And what could you just, you know, as we come to the end of the conversation, just enumerate what values you think are really important to be embedded over the next 20 years.

• 47:12Speaker 00

  Well, good institutions, capitalism, democratic checks and balances, political competition, free speech, a reasonable degree of transparency. I know it does not apply to all governmental secrets. Just quality leadership that's appreciated by voters is one of the most important things. And there's no formula that gets you that, but it makes a big difference. Let's say Britain had not had Winston Churchill, right? Things could have been very different. Leaders ultimately reflect the people who choose them, and we need to do better.

• 47:44Azeem Azhar?

  Unfortunately, people also find leaders who reflect the pressures of the moment. And we've seen this across a number of Western democracies, including, of course, you know, the US, the sort of change in the you know, fundamental tempo and direction of the nation over the last sort of six or seven months, reflecting a, you know, with the sort of a deep seated expression. So that that feels to me like a really tough place for us to bring our conversation to a close. And I hope we'll be able to continue it at some point in the future.

• 48:14Speaker 00

  I look forward to seeing you next. Thank you for this very thoughtful session.

• 48:19Azeem Azhar?

  I have one last question for you, though, which is this. I know you love your food. My wife and I love to entertain and I hope one day when you're passing through London, you'll come for dinner. If you are hosting a dinner, who would you rather have? Would you rather have someone from your field, a wonderful economist, or an AI engineer?

• 48:35Speaker 00

  The economist right now is boring. I would rather have the AI engineer, and these are not hypotheticals. If you look at where I go and with whom I spend my time, I can vouch that I'm telling you the truth.

• 48:46Azeem Azhar?

  Tyler Cowen, thank you so much for your time.

• 48:48Speaker 00

  Thank you.

• 48:49Azeem Azhar?

  Cheers. Bye bye.