Why History Can't Prepare Us for What's Coming | Alap Shah

In Episode 482 https://hiddenforces.io/podcasts/why-history-cant-prepare-us-for-what-comes-next-alap-shah of Hidden Forces, Demetri Kofinas speaks with hedge fund manager Alap Shah, co-author of "The Global Intelligence Crisis," a three-part essay series examining the economic, political, and social consequences of the dawn of artificial intelligence. Alap argues that AI is a categorically different technology from those that came before it, with profound implications for employment, the consumer economy, and democratic politics. The conversation explores why Alap believes the white-collar escape valve that absorbed displaced workers in past waves of automation is closing, the synthetic short on the US consumer economy embedded in today's AI trade, and the disintermediation of internet and financial services by agentic systems. They also discuss the policy interventions—from new corporate taxes to an AI dividend fund—that Alap believes will become politically necessary as labor's share of national income declines, closing with his forecast of a coming political realignment in which both major parties move meaningfully leftward on economic redistribution while the cultural divide between them remains largely intact. Subscribe to our premium content—including our premium feed, episode transcripts, and Intelligence Reports—by visiting HiddenForces.io/subscribe https://hiddenforces.io/subscribe. If you'd like to join the conversation and become a member of the Hidden Forces Genius community—with benefits like Q&A calls with guests, exclusive research and analysis, in-person events, and dinners—you can also sign up on our subscriber page at HiddenForces.io/subscribe https://hiddenforces.io/subscribe. If you enjoyed today's episode of Hidden Forces, please support the show by: Subscribing on Apple Podcasts https://podcasts.apple.com/us/podcast/hidden-forces/id1205359334, YouTube https://www.youtube.com/channel/UC8URhgYos5fjHqFSO4RSIEg, Spotify https://open.spotify.com/show/0TK6u251zGSlMgJKH6cOaP, Stitcher https://www.stitcher.com/podcast/demetri-kofinas/hidden-forces, SoundCloud https://soundcloud.com/hiddenforces, CastBox https://castbox.fm/channel/2629539, or via our RSS Feed http://hiddenforces.libsyn.com/rss Writing us a review on Apple Podcasts https://podcasts.apple.com/us/podcast/hidden-forces/id1205359334 & Spotify https://open.spotify.com/show/0TK6u251zGSlMgJKH6cOaP Join our mailing list at https://hiddenforces.io/newsletter/ Producer & Host: Demetri Kofinas Editor & Engineer: Stylianos Nicolaou Subscribe and support the podcast at https://hiddenforces.io https://hiddenforces.io/. Join the conversation on Facebook https://www.facebook.com/hiddenforcespod/, Instagram https://www.instagram.com/hiddenforcespod/, and Twitter https://twitter.com/hiddenforcespod at @hiddenforcespod Follow Demetri on Twitter at @Kofinas https://twitter.com/kofinas Episode Recorded on 05/25/2026

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

• 0:00Demetri Kofinas?

  What's up everybody? My name is Demetri Kofinas and you're listening to Hidden Forces, a podcast that inspires investors, entrepreneurs, and everyday citizens to challenge consensus narratives and learn how to think critically about the systems of power shaping our world. My guest in this episode of Hidden Forces is Alap Shah, a hedge fund manager and co-author of The Global Intelligence Crisis, a three-part essay series examining the economic, political, and social consequences of the dawn of artificial intelligence. In this conversation, Alap argues that AI is a categorically different technology from those that came before it, with profound implications for employment, the consumer economy, and democratic politics.

• 0:44Demetri Kofinas?

  We discuss why he believes the white-collar escape valve that absorbed displaced workers in past waves of automation is closing, the synthetic short on the US consumer economy embedded in today's AI trade, the disintermediation of internet and financial services by agentic systems, and the policy interventions from new corporate taxes to an AI dividend fund that he believes will become politically necessary as labor's share of national income declines. The conversation closes with Alap's forecast of a coming political realignment in which both major parties move meaningfully less word on economic redistribution while the cultural divide between them remains largely intact. If you want access to the transcripts and intelligence reports for this and

• 1:27Demetri Kofinas?

  other episodes, which include summary sections with key takeaways, you can access those by subscribing to our Super Nerd tier at hiddenforces.io/subscribe. If you want to join in on the conversation and become a member of the Hidden Forces Genius Community, which includes Q&A calls with guests, discounted access to third-party research and analysis, and in-person events like our intimate dinners and weekend retreats, you can also do that on our subscriber page. And if you still have questions, feel free to send an email to [email protected] and I or someone from our team will get right back to you. Lastly, because this conversation deals with investing, nothing we say on this podcast can or should be

• 2:10Demetri Kofinas?

  As financial advice, all opinions expressed by me and my guests are solely our own opinions and should not be relied upon as the basis for financial decisions. And with that, please enjoy this conversation about AI and its impact on the economy and society. My guest, Alap Shah.

• 2:32Demetri Kofinas?

  Alap Shah, welcome to Hidden Forces.

• 2:35Speaker 01

  Excited to be here.

• 2:36Demetri Kofinas?

  Awesome. So you first came on my radar because of a piece that you co-wrote with a former guest of the podcast, James Van Galen, also known as Satrini Research. And this was, remind me again, when this piece was published?

• 2:50Speaker 01

  Late February.

• 2:51Demetri Kofinas?

  I was gonna say two months ago. So that was more than two months ago. We're recording this on May 25th, so I guess three months ago. That was an explosive article. I mean, I remember that it was one of those rare works or interviews or something, piece of content that effectively like broke the news cycle within a certain segment. And that segment is, you know, financial media. And it was even attributed to certain SaaS companies selling off. And you guys got a lot of heat and blowback. Now, this was a thought experiment, so it was quite interesting to see the reaction of people. I went back and reread the piece since it first came out. And it was interesting how it felt reading it now versus reading it then.

• 3:35Demetri Kofinas?

  But I'm just curious, before we get into what you guys talked about in that piece, which was part of a three-part series that you got, that you had written, the second part was something that you guys co-wrote. But before we get into what it was, just tell me a little bit about like that experience. What was your sense of the impact that this piece would have when you were first writing it and preparing to publish it?

• 3:57Speaker 01

  Sure. It was quite interesting because we knew we were writing something that was quite important and that was very topical to what everyone was focused on. And we had certainly a unique point of view versus what else had been out there. But certainly, we did not expect the level of pickup that we ultimately saw. And, you know, we didn't expect the level of kind of pushback. But it made sense in retrospect when we thought about it. And then we sort of looked back at things because we were saying something very thought provoking. And ultimately, something that while being a thought experiment was quite scary. Because we're all in this world right now together where we're experiencing AI on a daily basis. We're seeing the improvements. We're seeing how fast it is improving and we're seeing how much of our own lives are being changed.

• 4:42Speaker 01

  And in a lot of our cases, how much of the work we do day in, day out can, if not be replaced, significantly augmented today by AI. And certainly in a world where if we just draw those timelines out and continue to see similar progress, a lot of it could be replaced. And so really felt like we hit a significant nerve around this idea that there was huge risk of displacement. And also that, you know, that just contributed to this broader sort of malaise and fear that we have in our society today around, you know, in a lot of ways, the American dream not being what it used to be. And, you know, even more risk around, you know, where is my place? What am I going to do? And, you know, is there a world and a social support system and a political support system to be able to protect me if that happens?

• 5:26Speaker 01

  And so I think we kind of really touched a nerve in all of those things together. And I think that was the reason why it had the pickup that it did. Ultimately, that was the intent to get people talking about it and really focused on what could happen. Because ultimately, the way that I think about this is it is in a lot of ways, the most transformative technology we've ever seen. But it is also something that we as society need to grapple with much more than just us, you know, as technologists and as financiers. And as a society, we're not doing a good job of that. We're very, very early in talking about it. And so ultimately, we put it out and the reason for it was we wanted to get the dialogue going. And, you know, in that sense, it has been heartening to see a lot more discussion. And, you know, excited to come on formats like this to really get that discussion going.

• 6:11Speaker 01

  Because ultimately, there are very clear solutions to this problem that are around our political economy. And ultimately, how we deal with taxes. And if we get those things right, which we should, but it's going to take a while and it's going to take a lot of compromise. But should we get that right? This is the most beautiful sort of opportunity for humanity to flourish. But there's a lot that has to happen to get there.

• 6:34Demetri Kofinas?

  So you guys stated upfront at the very top that this was a thought experiment. So you were very explicit about that. And yet, the backlash you got from a lot of people was pretty significant. And when I reflected on it the second time that I read it, I came to the conclusion that essentially, when you say you touched on a nerve, that there is a real fear out there. And what essentially that thought experiment did was it stoked those fears. And a lot of people took that personally, got upset. And it's very interesting because, you know, other topics don't do that, but this one did. And I think it speaks to just the level of fear out there. And I think you're right to align not just fears people have about AI, but also fears

• 7:19Demetri Kofinas?

  people have in general and have had for years about not making it, of not getting to participate in runaway asset growth, or not having enough money to purchase a home, or that others are making it and they're falling behind in this increasingly K-shaped economy. So I think it's important to kind of put that up. But would you agree with that? I mean, I think I'm pretty much echoing what you just said, but would you agree with that sentiment?

• 7:41Speaker 01

  Absolutely. It's just the AI is sort of the next thing that folks are even more concerned about to pile on top of everything else.

• 7:47Demetri Kofinas?

  And there's a lot of confusion and a lot of different opinions, even amongst those people that one would look to for expert answers on the topic. So also important to keep in mind as we go through this. So one more question for you. As I said, you guys co-wrote part two of this Global Intelligence Crisis three-part series. The first one that you wrote, what is the origin of this sort of three-part series? And then walk me through the argument that you make in the pieces.

• 8:13Speaker 01

  So part one was more of an overview of how I came to the idea. And to do that, I quickly sort of laid out my background and why I was uniquely qualified to opine on this topic. And the reason I believe that's the case is I have 20 years of experience as a public market investor. I was at Viking, I was at Citadel, I've been running my own fund for over a decade. I also have 15 years as an AI builder. When I left Citadel in 2011 to run my own fund, I realized that ultimately, all I did was process data all day. And the tools I used to process that data, Bloomberg and a lot of others, were all very dated for what I needed to do. And so I ultimately ended up building my own search intelligence platform called Centio. The idea was essentially Google for your financial information, which didn't exist at the time.

• 8:58Speaker 01

  That made me a much, much more broad and fast investor. It had a huge impact on my returns and eventually scaled that business to a few hundred people on my team and a few thousand clients before we sold it to a competitor. But in the process, I saw kind of soup to nuts from, you know, me and my brother in my apartment to a decent sized company, what it takes to build and especially build an AI. And the size of the impact I was able to have on my own workflow, when I was able to really utilize the most powerful tools that were out there.

• 9:29Demetri Kofinas?

  Before we get into the argument then, since you brought up your work experience, what have you specifically watched happen in your corner of the world that you would say was the most paradigm shifting for you around AI capabilities and what's coming? Make this concrete for people.

• 9:47Speaker 01

  Two examples, I think the most important one is today I run a couple of different companies where we build software for external users, for internal users. And a few years ago, and even a year ago, the process had not really changed. It had gotten a little bit more efficient, but it had not fundamentally changed. It was still, I had an idea for a new feature. I would speak with a product manager. Together, we would work with the designer to build the designs. And then we would ship that to a team of engineers who would, you know, maybe a week later, two weeks later, would come back with a prototype. We would look at the prototype, we would, you know, give feedback and push back on a lot of the prototype. And then we would do another round of revisions, you know, maybe three weeks, a month later, that idea would turn into a shippable feature.

• 10:30Speaker 01

  Since the advent of agentic AI and coding interfaces in, since last summer, and really for us since last fall, that has just fundamentally changed. Now, my process, if I want to create that new feature is I talk to Claude. And in the course of 20 minutes, often less, I have a clean spec. And then, you know, with under an hour, I can have something that's actually working. It's not. Going to be the thing that I'm going to ship to a client, but it is very, very powerful to iterate and get eighty, eighty-five percent of the way there in a very short time period. And so that has just fundamentally changed how I think about software development. And in a lot of ways, software development is just the tip of the spear, the thing that we've got the most training data on, the thing that we focused on the most.

• 11:15Speaker 01

  And thus, it's the thing that is accelerated the fastest. That means that ultimately, the teams we need to build software are much smaller. They're much leaner, they're much more agile. We can move a lot faster. And today, for us, that doesn't mean we're not hiring as many folks. But I think it will likely mean that in the future. And I think it is going to mean that for larger companies, since I'm primarily running small agile companies. And so that has been the fundamental change that I think is sort of upstream of everything else that's coming for software, but broader for society.

• 11:44Demetri Kofinas?

  Okay, so I actually look forward to talking with you as well about how many of these gains can be generalized. In other words, what we're seeing in the area of software development, where else does that, you expect that to filter through? It sounds like you expect to filter through to almost, if not all, other jobs. So I'd like to understand the principle there behind your thinking. Again, let's go back to your central argument. Lay that out for me as best you can. The central argument that animates the three pieces of the global intelligence crisis.

• 12:11Speaker 01

  Absolutely. So at a high level, human intelligence is an extremely important, if not the most important, input into the production function. We need it to make pretty much everything. And the underlying idea there is this has been a bedrock of how the economy works. Knowledge work is really important. Ultimately, white collar workers generate the majority of the wages in society and drive the vast majority of the spending. For the first time ever, in the last six months, AI has gotten to a level of capability where it is able to begin to substitute for some of that cognitive work. And ultimately, what that represents is just a huge rightward shift, outward shift of the supply curve for intelligence.

• 12:54Speaker 01

  And as it becomes more and more competitive with human intelligence, it is going to substitute more and is going to drive the price of a unit of human intelligence down. In a world where a price of a unit of human intelligence goes down significantly, there are just massive downstream consequences of that throughout our entire economy that haven't really been dealt with or thought through clearly. Ultimately, what that means is that there's going to be less demand for human intelligence. And the fundamental argument that the bulls are making is that, which, part of which I don't disagree with, but the idea is, okay, great, we have way more intelligence in the world, we always need more intelligence, that is going to lead to more GDP growth, more productivity, and we're going to be completely fine, there'll be more jobs coming

• 13:39Speaker 01

  out of that. The place where I push back is every previous boom of technology like this has ultimately been one where the technology that was booming was an enabler of human labor. And so, yes, you needed fewer telephone operators, but that led to all kinds of other white-collar jobs. The problem this time is we don't have an enabling technology, we have a truly substituting technology. It can just do the work that humans would previously do. And so if you take that as a given, which is a big debate, which I'm happy to get into, but if you take that as a given, and it is truly substituting, then it is not clear where the new jobs are going to come from in this sort of GDP growth world.

• 14:20Speaker 01

  And so if that happens, we have this sort of problematic transmission mechanism where historically, okay, more GDP growth, more jobs, the new jobs will show up to replace the old jobs and we'll be fine. This time around, the difference is if those jobs don't show up, we could have this insane, amazing AI productivity boom, but it could actually lead to a huge slowdown in the economy rather than a speed up in the economy once it really gets going. And the reason for that is that those jobs, even if, let's say, you know, 5% of jobs in the US go away, they will be very high-paid, white-collar jobs, and our economy is ultimately a consumer economy, meaning that those folks are going to stop spending, and especially

• 15:04Speaker 01

  as the safety nets run out. And more importantly, if you, you know, I think this is happening in a lot of tech companies today, if you look to your left and your right, and the person who You know, was working in accounting next to you, was working in operations or customer success, has now lost their job. You still have your job, but you're massively going to retrench on your spending and take your savings rate up very significantly. And so it won't take that much for those folks to really have an impact on the economy. And those folks who do lose their jobs, they're going to go into the blue collar economy to find additional job if there isn't white collar work available. And so they're going to depress the blue collar sort of supply demand balance as well. And so all of this could very quickly lead to a situation where you have a very depressed consumer economy. And once that happens, it could be

• 15:49Speaker 01

  pretty self fulfilling because those companies will cut. The consumer economy is ultimately the US economy. And so from there, the problem is it won't necessarily bounce because historically in that world, what happens? The Fed comes in and they say, okay, you know, it's very inflation is lower negative now. We need to cut significantly and in the process boost demand. The problem is the demand for those folks that are already slowing down is not really going to bounce in a world where they're worried about AI getting more and more powerful. And so all of the sort of traditional heuristics around how economic cycles work will stop applying in the same way because AI is just this completely new technology. And so we need a new framework and a new playbook to deal with it is ultimately sort of our argument.

• 16:34Demetri Kofinas?

  So I definitely, I think where I'm probably, at least at the beginning of this conversation, before we got into the end of it, because I'm waiting to see if you can convince me otherwise, but I'm, I tend to agree with you from the standpoint that the rate of change is different for this technology. Where I'm not yet convinced, and I want you to try to convince me in this conversation and those who are skeptical in the audience, is that this is a different kind of innovation cycle. And when I say different kind, I mean, different, not just in the way that the industrial revolutions, one and two was different from the IT revolution, assuming that this is not actually part of that larger IT revolution, which is a different question,

• 17:14Demetri Kofinas?

  It is different from all of those in a substantive way so that it sort of just breaks the economy in a way and society in a way that the previous ones didn't. And fundamental to your claim, it seems to me, is that what you just said earlier, which is that human intelligence is substitutable in this case, whereas it wasn't in the previous cycles of innovation. And I'm yet to be convinced of that. So walk me through why you believe that these large language models are basically going to become so good that they will exceed human intelligence in every single domain that we can possibly think of. Such that, importantly, such that the, there is no room for innovation in the place of

• 17:58Demetri Kofinas?

  cognitive work, so that the existing roles that we have today, that people do, that can, and I agree with you, should be substituted by AI, that those can't be replaced with other forms of cognitive work that AI cannot do.

• 18:13Speaker 01

  So I would push back to say that it's not required that this be better than humans. In a lot of ways, all it is required is that they be almost as good as humans to substitute a large amount of today's labor, because ultimately, humans are expensive to employ, they require lots of time off, benefits, et cetera. And most importantly, you know, an organization is a collection of humans and increasingly agents that are trying to get something done. And the problem is, most humans, to get more than a small group of humans rowing in the same direction to get something done, there's a large coordination tax. I wrote in my piece, I think in a lot of ways, you can think about the entire Microsoft

• 18:58Speaker 01

  Office suite as just a large coordination suite for humans. So Outlook, Word, PowerPoint, these are all different ways to get people together and understand why we're doing something and how we're doing something. The beauty, but also the scary thing about agents, is they don't require any of that. They will work 24/7, they don't need benefits. The cost of doing a unit of work is a tiny fraction of what it costs a human to do something. You know, I would typically... The numbers will represent less than 1%. And they don't require coordination because they can all be singing from the exact same context, the same song sheet. One of them learns something, it can update that in real time. The other ones basically know in real time. So you put all those things together and you're in a situation where it doesn't really take that

• 19:42Speaker 01

  much, not for all humans to become unemployed, right? That is a far cry from what we're advocating here, but we're in a world where we haven't really seen white collar job growth in the US in many years. And into that world, we are now seeing agents enter and AI enter in such a way that it doesn't take much to have a company say, you know, we're going to cut 10%, we're going to cut 15% and move that over to a combination of agents, but more importantly, those most productive people in my organization who now can do five times, 10 times as much. And those are real numbers that we're seeing in a lot of places where the most productive folks in an organization are just being enabled in unbelievable ways by AI.

• 20:23Demetri Kofinas?

  So just to be clear, I actually think that, so to your point about superintelligence versus, you know, intelligence that's comparable to humans and costs much less, I don't necessarily disagree, but within the existing domains of cognitive work that we can cite currently, my question is, why do you feel so confident in the long term that large language models and AI will dominate from an economics perspective, every single domain of cognitive work? That's a sweeping statement. And so what is it that you have seen? What is it that you can point to that makes you feel so confident in the capability of these systems?

• 21:08Speaker 01

  The first thing I've seen is just, I see it in my daily life, day in, day out. My process for building software has completely changed. We need Thirty or forty percent of the number of people that we did in the past, and I myself, as a leader of the organization, can get so much more done without having to consult with any humans. And a lot of the latency and the drag around getting things done in an organization is senior management figuring out how to get things done and how to start V1 of something. And now I can hand my team something that has been reasoned through with an LLM for an hour or two that is quite crisp and has most of my thinking built in, something I could never do before. And so it massively increases the velocity, which

• 21:51Speaker 01

  is a huge positive, but it also means I need less of those folks on my team. The other example is I run an investment fund. And previously, you know, the more analysis I needed to do, I would hire more analysts. And I increasingly find myself just going directly to Claude and ChatGPT and not going to analysts much at all for that analysis because all of that data is sitting in the system. Because imagine if you had an analyst that instead of spending twenty minutes responding, like figuring out your query, could respond in thirty seconds and had the full internet's knowledge base built in. And that's sort of the world that we're in today, I find for myself with financial analysis. And so it is something where I can prompt the thing, it gives me the answer,

• 22:33Speaker 01

  and I've iterated on three or four more decision branches before ever having to talk to anyone else. And so in the process, I see myself just massively accelerated where, you know, I'm running multiple businesses and I'm able to just me plus my AI cover so much ground in a way that I never could before. And so there is absolutely the opportunity for everyone to be this accelerated. But the way our society is set up from a wage perspective is that that is going to concentrate the spoils to very, very few people. And so it doesn't take anything to be super intelligent. It just where those things are positioned and how they're able to accelerate leaders is something that is really positive, but also, you know, what is going to happen to the bottom half of the distribution is ultimately

• 23:16Speaker 01

  what I'm super focused on from a risk perspective.

• 23:20Demetri Kofinas?

  Yeah, look, I will tell you that I have seen, I use Claude all the time now for my pre-production and especially for my post-production work, which is much more routine. And it's been incredible. I'll acknowledge that. But yeah, I guess we don't have to to try and sort of sort this out, at least not at this moment, because there are other things I want to ask you about from your thought piece. But at the end of the day, this is all in service to me. I can't rely on Claude to do things autonomously at the anywhere near the level that I am able to do them in conjunction with the AI. And so, and you acknowledge this as well, like that you're using the systems in service to you. So, you know, I certainly can see how this this intermediates the economy more, how it

• 24:05Demetri Kofinas?

  advantages startups in many ways and and reduces the the headcount for a lot of companies, at least startup companies that need fewer resources to start up. What that means for job losses at corporations and how the politics at these companies maybe create some inertia, I don't know. But let's, okay, so that kind of begins to address the question of like, why do you think this time is different? In the piece, you also argue that AI is the first technology that targets the nonroutine cognitive work that absorbs every prior wave of displaced workers, and that essentially, this is going to be a problem for employment. And so my question is, separating, you know, questions of superintelligence and high-level

• 24:47Demetri Kofinas?

  cognitive replacement, why is it a problem if nonroutine work goes away?

• 24:53Speaker 01

  Because the specific framework that we're referring to here is, think about a two by two matrix of manual labor and cognitive labor, and then think about routine work and nonroutine work. The first quadrant being manual routine work. That has begun to be automated since the dawn of the industrial revolution, right? The factory line is sort of the best example of that. So those jobs have gone away. That leaves you the other three quadrants. Since the 1980s and sort of the first sort of IT revolution, you started losing a lot of the routine cognitive work. This is sort of like, you know, things in accounting and things like that. Think about it, the reason that that automation did not lead to significant job losses

• 25:36Speaker 01

  is that most of those folks moved into cognitive nonroutine work. This is sort of the work that most of our white collar work is today. And the problem is that that was the escape valve for all of those white collar workers. And that escape valve, our belief is, will no longer hold in this AI-first world. You know, today, you're right, the AI cannot sort of take a full task and do it end to end. Some of them are doing, are getting better, but they're not quite there yet. But ultimately, the reason I think that the risk is so large is we have to just look at the trend lines and how these trend lines are progressing. Where we have this exponential trend line of AI improvement that has been, you know, in a lot of ways, going for almost a decade.

• 26:19Speaker 01

  But really, if you think about ChatGPT as the starting gun, has been going for, you know, well over three years now. And we're in a world where as those trend lines continue to trend upward, and this is an exponential, so, you know, the growths are tremendous. But most importantly, what are we doing as a society? And what are we doing as an economy in response to those trend lines? We are putting more and more dollars and focus into the AI story, and especially AI capex. By 2028, AI capex will be more than 1% of global GDP. I think that is a floor, and it will continue to go up. I mean, just look at what's happened to semiconductor stocks in the last even month. It's very clear to everyone that the ROI on these things, you know, look at what happened to semiconductors,

• 27:04Speaker 01

  and look what's happened to Claude's run rate R in the last few months, where, you know, it's adding the equivalent of like, you know, entire SaaS complexes in ARR in a single month because it's becoming that powerful and it's becoming that useful. And so this virtuous cycle has taken, taken off, and it's going to a new level. We have most of the world's most intelligent people all focused on the same problem. And so you put all those things together, you have the compute, you have all the algorithmic improvement, you have the capital that is backing it. And you're in a world where we're going to see continuous accelerating AI capabilities even more than we've seen in the last three years. So just consider what that would mean a year from now, two years from now. We put all this together, and that's why I've got a reasonable level of confidence

• 27:48Speaker 01

  that a lot more intelligence is coming from AI. And ultimately, that's going to mean that there is going to be a lot more risk around replacement of human labor.

• 27:58Demetri Kofinas?

  So I think maybe the thing I enjoyed the most, and this was probably in the part two of the three-part series, was your observation about trillions of dollars of enterprise value having built on monetizing human limitations, essentially the frictions in our economy. Walk me through this argument and tell me a little bit about how you guys came to it. This observation, this belief about essentially everything in the middle getting wiped out.

• 28:26Speaker 01

  Yeah, it's really interesting because I've been an investor and a student of the internet for almost 20 years. And if you think about what the internet ultimately does, it helps you find information and then helps you find goods much more easily than you could before. So that's ultimately just a form of intermediation. And if you really take a step back and think about what our economy is, it's a ton of intermediation. There's lots and lots of search costs and pre-internet, things were really hard to get information, and now they've gotten easier and easier. And so a huge amount of our economy, and especially a huge amount of our market cap, is just a tax on human time, human laziness,

• 29:11Speaker 01

  and human imperfect information. And agents flip all of that on their head. You and I, to save a buck, are not going to run three or four more searches on our phone and spend an extra few minutes. For an agent, that is a trivial thing to do. You and I are not going to find every listing. We're not going to be able to go in and understand all the pros and cons, read all of the reviews of a given product. Agents flip all of that on their head, where they can be infinitely patient and they can find all that information. And if you think about a world where today, the way we work is we open up our phone and we're going to go to our trusted app to go in and find how to get a pizza, how to get

• 29:55Speaker 01

  a ride, how to book a hotel. But in the world that is coming, and the reason we came to this thesis is because I'm kind of living in this world already where I'm running agents for all these things, it just fundamentally changed. Just how you behave where your phone imagine, let's say it's a year from now and either this is happening on your Android phone or using Gemini or using chat GPT. And instead of opening up the DoorDash app, opening up the Uber app, opening up the booking app to book something. You just speak into your your AI or into your phone, you know, order me a pizza from Joe's. Book me a four star hotel in Boston for me and my family and it does the rest.

• 30:36Speaker 01

  Right. That's the world where we're rapidly moving to. In a lot of cases, you know, I'm able to do a few of those things today. And that world will be one where all of those intermediation steps that created some of the largest companies in the world and created some of the big, what was historically perceived as some of the biggest moats in the world will essentially be completely flipped on its head. Are all those businesses going to go away? Of course not, you know, they're going to adapt and there's going to be new opportunities. But there is going to be a huge sort of aggregation of demand into these companies that are driving the intent. And it will make humans way more productive, will be able to get way more done, will be way more efficient. But it will also mean that we don't have to pay any of the taxes of an intermediation layer. And so most of the internet is an intermediation layer.

• 31:20Speaker 01

  The other place that is a huge intermediation layer is financial services. Most of the financial services that we consume, again, you know, we have our trusted partner. You know, we use our banks for all kinds of things. We use a few other, you know, insurance brokers and whatnot to buy most of the information, the financial products that we require. But it's the same thing. It's because you and I don't want to read, you know, the 20 pages of a insurance contract to understand, you know, what the pros and cons are. And, you know, last year I had this insurance contract. I probably didn't use it. I'll just renew and I'll go along my merry way. Whereas instead, the agent's going to be able to find, A, it's going to be able to find the best contract, but it also is then going to be able to iteratively

• 31:59Speaker 01

  negotiate on your behalf to find the one that is willing to give you the best deal, you know, the most product for the least money. And so you put that together across these industries like around internet and financial services. It's a huge percentage of our market cap and employment. And I do believe that a lot of that is going to have a Huge, huge sort of negative impact from agents, which the really good news there, though, is most of those surpluses are going to flow back to individual consumers and that will hopefully cushion some of the blow from potential job losses as well.

• 32:31Demetri Kofinas?

  Okay, so let's, I think we've certainly capable of revisiting some of the negative knock on effects and we haven't even really talked about the doom loop that you guys wrote about, which you touched on early on in the conversation. What are the skill sets that you envision that will be advantaged or are advantaged in this world and that will become more advantaged? The skill sets, and if you want to, you can describe them also as jobs, but I mean, more fundamentally, who are the individuals that are going to be well positioned in this world?

• 33:00Speaker 01

  People who are agentic by nature, who are able to use the AIs and ultimately-

• 33:09Demetri Kofinas?

  What does that mean? Because I've heard that term used a lot and I don't really understand it. I mean, it sounds like they're saying basically people that are conscious, but even that doesn't quite track with me.

• 33:17Speaker 01

  People with initiative first and foremost, I guess what I would say is, you know, if you have a vision of a thing you want to do, a thing you want to build, these AIs are so empowering in a way that nothing else has been. You know, the company that you previously could not have started, now you can start, you know, with essentially a Claude subscription, right? Previously, you'd require people to help you build the product and people to help you market it and people to help you serve your customers. Those people are still required, but you need a lot fewer of them and especially to get started, it's really powerful to just be able to come in and say, hey, like build me this thing, find me these customers, help, you know, sell these customers. That is the most promising and exciting part of where we are today with AI

• 34:01Speaker 01

  and it's only going to get more powerful. So people who have that initiative, that have that vision, that in the past, you know, really just wouldn't have had the capital to go and build these companies. Now the capital requirements are way, way smaller. At the same time, there are more dollars available for these sorts of entrepreneurship.

• 34:18Demetri Kofinas?

  Just to make that more concrete and tangible for people, are you essentially saying that people who possess the skill set that's commonly seen in entrepreneurs are going to be advantaged? Or is there something that we can distill even further in this notion of, you know, being ambitious, being driven, being uninhibited, having initiative?

• 34:37Speaker 01

  People with the entrepreneurial skill set absolutely are going to be hugely empowered. But ultimately, I think this is something that we as society need to embrace and our education system especially needs to embrace is the skill set of entrepreneurship needs to become much more broadly distributed and taught because that is the skill that I think will become most important in our society is that initiative is the way that you would direct your AI, your set of agents to bring about a new product, new change in the world. And that's not just in a business sense, it's true for any sort of pursuit where the ability to direct AI in a way where you understand what it's good at, what it's not

• 35:19Speaker 01

  good at, and how that maps against whatever the requirements of your customer are or of a cause that you're working on, it's sort of the most important skill. And it's not one that's necessarily being taught in school today. It's not even one that's necessarily being taught in the workplace today, but it is becoming increasingly important. So this idea of sort of AI and agentic literacy is in a lot of ways going to be upstream of just being a productive human in society.

• 35:44Demetri Kofinas?

  Yeah, so no, I'm glad you brought up education because I think there are both huge opportunities there and it's also very exciting what can happen. And I also agree, and we're going to have a chance to talk about this, about the need for reform at the state of the social compact, you know, the social contract. But I still don't understand why, because I, in a world where individuals who are, let's say, have, will be more commonly think of as the entrepreneurial skill set are advantaged, I don't understand why that advantage, which seems to be unique to human beings, based on my extrapolation of your argument around the differentiation of agency, why that doesn't become one of the new pillars

• 36:26Demetri Kofinas?

  around which society is organized, or the gains of the new economy are distributed. It becomes a new source of competitive advantage. That's what I'm not understanding. Like, in other words, I feel like there's so much that I don't understand and can't imagine about what the new economy is going to look like. And you're not the only one. There's, this is a common view. So, right, like, your article hit on a nerve and a lot of A lot of people are worried about this. And again, I want to emphasize further that when I have seen some of the things that Claude can do, I've had moments where I I look inside and look at my business. I say, am I going to be replaced when I see Notebook L M having two hosts talking about a topic? I'm like, what is the value that I provide? But in each of those situations, I ultimately look inside of myself and I say, okay,

• 37:10Demetri Kofinas?

  I may not know how this thing is going to evolve, but I have to have some faith that I'll be able to navigate it. And I just think we haven't seen anything like this in so long that we don't appreciate how frightening some of the previous waves were. Where I would certainly agree is this one does seem to be moving faster. But just why do you feel so confident that these areas that you've already identified as being points of differentiation between human beings and A I are not the new focal point around which the gains of this technology will be organized and distributed?

• 37:43Speaker 01

  It's the distribution that's the problem because the gains for folks like you and I are going to be very significant. But if you and I, operating at the levels that we do, are having real existential questions around, you know, what am I going to be doing in a few years' time if this technology continues progressing at a similar rate? Then what's going to happen? A great example I'll give you is what's going to happen to the person who just graduated from college at like a, you know, second or third tier university with a, you know, mediocre G P A within that college, right? We're already seeing a world where historically, you know, young people coming out of college historically had much better unemployment rates than older folks.

• 38:28Speaker 01

  And that has very definitively flipped since twenty twenty three and has gotten worse and worse every month. I'm seeing this in my own business and I, you know, talk to friends who run companies and we see the same thing where historically you would invest in someone early on and they would take five to 10 years to really come up the curve and become, you know, some of your best performers when they got into their thirties. Now that ladder is just being pulled up for folks like that. And, you know, part of that is other parts of our economy having issues, but the The ultimate driver of that, I think, is AI. There's a lot of data to suggest it is AI because, you know, that person in the first few years of their tenure are ultimately a bit of a drag on the organization. And you're training them and investing in them for the long term opportunity.

• 39:11Speaker 01

  And in a world where AI can do especially that entry level work really well, in a lot of cases, better at a tiny fraction of the cost. You end up in a situation where, you know, those folks are just not going to be employed the way they have been in the past. And so I think those folks are at the bottom of the distribution in terms of their skill set and their experience set. And so it makes sense that that's where AI would hit first. And we're very clearly seeing that it is biting and we can see it in our own day to day and we can see it in the numbers. And so if those folks are a proxy of AI today and AI's capabilities continue advancing at a significant rate, then why isn't that going to essentially apply to more and more of the population as AI continues to improve?

• 39:52Speaker 01

  That's ultimately, you know, I think what what I'm most concerned about, what gives me some confidence that this is a real risk.

• 39:58Demetri Kofinas?

  So let's talk about what are some of your proposed interventions, which is what you cover in part three of the global intelligence crisis. What do you think needs to change? What policies need to be instituted on the part of governments in order to address the social fallout that will stem from the advancement of these technologies?

• 40:20Speaker 01

  So the way that I've tried to structure this in part three of my piece is first and foremost, to think about this not as if you were to rebuild our sort of economic system and taxation system for AI. Tabula rasa, there's a lot of aggressive things that you would do. And I think we will end up in that world and we will be forced to do that at some point. But I wanted to lay out a plan that was much more of the moment that might have an opportunity to be passed in the next few years as, you know, society and our political economy wakes up to where things are moving very quickly. And so most of what we've proposed is more of an incremental, you know, let's change our existing rules in this way so that we might get better outcomes.

• 41:03Speaker 01

  And so the first sort of obvious here is that we tax labor even today more than we tax AI. We have, you know, social security and Medicaid taxes on labor that doesn't exist at all when you instead tax corporations. And so we should fix that. That should be the pretty easy fix.

• 41:19Demetri Kofinas?

  When you say fix that, what do you mean? You mean reduce income tax versus capital gains tax?

• 41:24Speaker 01

  No, it's just, you know, if an agent does some work for you, you know, it doesn't really, it doesn't get taxed in the way that if a human does work for you, you know, there's a seven or eight percent FICA plus Medicare tax on that. And so the easiest way to do that is like measure an agent's work and put a similar tax on that in the same way that you would an employee. Because essentially, the way the tax system works today is you have incented corporations to outsource work from humans to any form of automation. Historically, it was, you know, software and other forms of automation, including you might even say sending things overseas. And now we're increasingly incenting the use of AI rather than humans to do work. And so that's a very simple fix that we think we should make.

• 42:08Speaker 01

  And then the other side of that is we haven't really responded to the way the job markets have shifted over the last 20 years, where it's no longer, you know, a world where you come in and you have a job for many decades and you build a career. It's much more, we have portfolios of careers and people are doing different things and side gigs. And there's lots of just gig work. That gig work doesn't come with any sort of benefits. It doesn't come with any sort of social safety net. And so a world where I think more and more of that is coming with AI, we should recognize that and we should build some sort of benefit system that moves with you from job to job. I think these are kind of very obvious, no nonsense things that we should get done soon.

• 42:47Demetri Kofinas?

  And I would argue that that suggestion also, I think, applies even to the pre-AI world, you know, the gig economy, I think was itself, made the case very well for something like that.

• 42:57Speaker 01

  Yeah, it's been a long time coming. Obviously, there's a bunch of vested interests that are pushing against that. But I do think that the world that we're moving into with AI is going to give that a lot more momentum to actually get something done. That's sort of step one, really obvious, no nonsense things. The thing that I think ultimately matter more is what happens when AI starts accelerating from here. And so the way that we've structured the plan is to focus on what is labor share of income. And so labor share of income, you know, started out In the sixty plus percent range, you know, in the eighties and nineties, and it's been trending down to around fifty four percent today. We say, you know, if that breaks definitively to the downside, so close to fifty and certainly below that, then a bunch of sort of new things should be triggered.

• 43:39Speaker 01

  Because essentially what that means is, you know, AIs continue to zoom. Corporations are replacing human work increasingly with AI. And in the process, if we don't really focus on it, it's going to lead to a lot of the sort of scary scenarios that we're worried about. And so in that world, what needs to happen is there's a few different ways you could taxes, right? So Dario and others have talked about a token tax and, you know, I think there's a world in which that makes sense, especially kind of the end state. But for now, the way we think about it is let's be really direct. Like, Americans don't really like income taxes. They don't like increased taxes on the rich and they don't really like wealth taxes. They have a much less of a negative association with corporate taxes.

• 44:20Speaker 01

  And in this world, corporate taxes are the sort of ground zero of where the impact is coming from. Right? Those corporations are the ones that are, you know, replacing all those jobs with AI. And so we should tax them more heavily. We should specifically tax corporations that are doing that. And the easiest way to figure that out is the places where margins are just exploding. Right? So if you're a company that is hiring more people, your margins are steady. Your taxes shouldn't change at all. But in a world where overall, you know, jobs are disappearing really fast, then let's go directly to the source of where the jobs are disappearing. The places where corporations are aggressively cutting humans. And let's go and tax right there and take those taxes and make some of the humans that have lost their jobs and can't find new jobs because AIs continue to accelerate.

• 45:06Speaker 01

  You know, essentially use the Earn Income Tax Credit framework to help those folks. And initially, the idea is, don't make that a giveaway. But instead, make that, just like the EITC, focus on folks that find new jobs or new jobs are not available, who are looking for new jobs, who are reskilling or are doing sort of community service work. So very much condition it on continuing to work in some sense. But support those folks because you're likely in a world where the jobs are just not out there. And so that we think about as sort of step one is tax of corporations and use that to make some of the folks that lose their jobs whole. In a world where things

• 45:45Speaker 01

  get worse than that, we advocate for more of the same sort of taxation and focus that taxation on not just earn income tax credit type job support, but more significant handouts. And then what we call kind of an AI dividend fund, which is like the Alaska Permanent Fund, where you use some of the taxation and some of the spoils from AI to essentially kind of give every American some sort of a stake and something that is an account that actually they can use. This all will come from a world where GDP is zooming, corporate profits are through the roof, and we'll be able to afford more of those things.

• 46:24Demetri Kofinas?

  So what are the investment implications? Obviously, you don't want to be, as we said in general, you don't want to be a company that has benefited from the friction. But like, how do you formulate this into an investment thesis? And how have you done that?

• 46:39Speaker 01

  So the way that we talk about it in the piece is, I believe there is a large synthetic short on the consumer economy that is inherent in the AI trade today. So the flip side of semiconductors and anthropic going up every day is that the reason they're going up is because they're substituting for human labor. And so today, we're not seeing that yet because we're still in the first inning. If we're in the third or the fourth inning of that, and we're really starting to see that, you're going to see that show up in consumer spending. You're going to see that show up in jobs being reduced, and especially spending retrenching, even for folks who still have jobs. And so that will be the other side of that barbell,

• 47:21Speaker 01

  where semis keep going up, but the consumer economy, which is the bulk of the US economy, will suffer. And so from an investment implication perspective, before any of the policy gets passed to fix that, the way I think about it is semiconductors and other parts of the AI complex are very clearly winners and will continue to be winners. And anything that is focused on human wages and labor leading to Consumer spending will be on the other side of that. And so most of retail, most of consumer, most of the leisure economy and all the other sectors that serve those sectors, like trucking and things like that, are all going to suffer. And so that is, I think, the clear sort of investment implication of V1.

• 48:05Speaker 01

  Now, what we need to think about, what are the knock on effects of all this happening? And that's where, you know, I'm reasonably positive that as a society, we'll be able to address this problem, figure out the taxation, and in the process, you know, kind of close that synthetic short, which I think will be good for society, will be good for the markets. Because ultimately, it's unlikely we're going to have a market that keeps going up when, you know, semiconductors keep doing really well. And most of the consumer economy continues slowing down. That's going to lead to all kinds of weird recession-like implications, as well as ultimately the risk of AI capex and AI funding drying up.

• 48:41Demetri Kofinas?

  So one more question for you, Alap. You mentioned to me, I think you mentioned to me that you have another piece coming out. Is that right? Do I remember correctly? You're working on a part four?

• 48:49Speaker 01

  Not necessarily a part four, but a new, new piece around.

• 48:52Demetri Kofinas?

  Yeah, can you give us a preview of what your next piece is going to be about?

• 48:55Speaker 01

  Sure. Thinking through what we've just talked about in terms of, you know, where our political economy will go and how we navigate this transition, if it comes to pass the way that we expect it might. The piece is really focusing on what we believe to be a new sort of alignment, a political alignment that's likely to arise from AI. And the idea is, historically, you know, you've had the left and the right, and, you know, they both have very different beliefs on both cultural issues as well as economic issues. And so on the economic side, you know, the right was focused on lower taxation, less redistribution, and generally kind of more open laissez faire economics.

• 49:39Speaker 01

  And the left is focused on the opposite of that, more redistribution and more regulation. We have this very interesting situation arising right now, where if AI continues progressing and jobs do get hit in a way that we expect they Will the cultural alignment will not change. But I do believe that there could be a significant sort of realignment when it comes to economic policies. In a lot of ways, you can think about folks that are voting for the right, who are not wealthy, who are the majority of the electorate on the right today as folks that are voting primarily for social issues at the expense of economic issues. And that's something that you can afford to do in a world where you have a stable economy.

• 50:24Speaker 01

  You have a job in a world where your jobs are gone or not stable. You have to start focusing on that first and foremost to put money on the table day to day. And so in that world, we expect a real opportunity from a redistribution perspective for both the left and the right to move to the left to essentially say, you know, if you're a politician on the right, you know, we're going to be focused on traditional cultural values. But we need to react to AI by having a real social safety net. Because if not, you know, the wheels are going to fall off. And ultimately, you know, you're going to lose the majority of your your voting base. And so in the process, I think the left is likely to move significantly more left in terms of redistribution. I also believe that the right is going to move significantly left on those redistribution issues.

• 51:09Speaker 01

  Certainly not as far left as the left will, but both parties will move significantly to the left because that's the only logical replacement AI. And in a lot of ways, that's the only way that the thing that we're talking about in part three can actually come to pass because today's political alignment probably won't get that done. But as jobs continue to erode, it's something where, you know, politicians are going to become much, much more responsive to that. And so the belief there is, you know, I think already AI has gone from issue number 10 or something in terms of voters focused to, I think, three or four today. And I believe, you know, by the midterms, it's going to be, you know, top two, top three issue.

• 51:52Speaker 01

  And by 2028, I think it's going to be the only issue that matters. Because it's moving that fast. It's that clear to everyone what's happening. And, you know, it's just a fundamental risk to sort of everything underlying our jobs, our economy and ultimately kind of security of an individual.

• 52:08Demetri Kofinas?

  So I really appreciate you coming on the show, Alap. And I especially appreciated part two of your three-part series, as I, if I didn't already say this, I should have, despite remaining unconvinced about some of your assertions, including the determinism around job losses and the substitutability of human general intelligence for machine intelligence, because I think engaging in thought experiments like this is invaluable, and the fact that it triggered so many people and generated such a deep emotional response is in and of itself, I think, a very powerful piece of information that speaks to just how significant this issue is and how little airtime the topic seems to be getting among the political class.

• 52:51Demetri Kofinas?

  In fact, I feel like politicians are treating this technology the same way they've been treating social media, which is to say that they're paying lip service to people's concerns, but doing nothing about them, when the correct response should probably look more like our response to the pandemic or to the 2008 financial crisis, though that would require a degree of preemptive action that I think is rarely seen in politics. If people want to follow your work, Alap, or read any future issues that you publish, how can they do that?

• 53:21Speaker 01

  Primarily through X. I'm Alapsha1 on X, A-L-A-P-S-H-A-H, and then also on Substack, Alapsha, A-L-A-P-S-H-A-H. Appreciate you having me. It's been great chatting.

• 53:33Demetri Kofinas?

  Absolutely. Thank you so much for coming on the show.

• 53:35Speaker 01

  Cheers.

• 53:36Demetri Kofinas?

  If you want to listen in on the rest of today's conversation, head over to hiddenforces.io/subscribe and join our premium feed. If you want to join in on the conversation and become a member of the Hidden Forces Genius Community, you can also do that through our subscriber page. Today's episode was produced by me and edited by Stylianos Nicolaou. For more episodes, you can check out our website at hiddenforces.io. You can follow me on Twitter at Kofinas, and you can email me at [email protected]. As always, thanks for listening. We'll see you next time.