Full Episode
Tyler, welcome. Dwarkesh, great to be chatting with you. Why won't we have explosive economic growth 20 percent plus because of AI?
It's very hard to get explosive economic growth for any reason, AI or not. One problem is that some parts of your economy grow very rapidly, and then you get a cost disease in the other parts of your economy that, for instance, can't use AI very well. Look at the US economy. These numbers are guesses. But government consumption is, what, 18%? Healthcare is almost 20%.
I'm guessing education is 6% to 7%. The nonprofit sector, I'm not sure of the number, but you add it all up, that's half of the economy right there. How well are they going to use AI? Is failure to use AI going to cause them to just immediately disappear and be replaced? No, that will take, say, 30 years.
So you'll have some sectors of the economy, less regulated, where it happens very quickly, but that only gets you a modest boost in growth rates, not anything like, oh, the whole economy grows 40% a year, in a nutshell.
The mechanism behind cost disease is that there's a limited amount of laborers. And if there's one high productivity sector, then wages everywhere have to go up. So your barber also has to earn twice the wages or something. With AI, you can just have every barbershop with 1,000 times the workers, every restaurant with 1,000 times the workers, not just Google.
So why would the cost disease mechanism still work here?
Cause disease is more general than that. Let's say you have a bunch of factors of production, say five of them. Now, all of a sudden, we get a lot more intelligence, which has already been happening, to be clear, right?
Well, that just means the other constraints in your system become a lot more binding, that the marginal importance of those goes up, and the marginal value of more and more IQ or intelligence goes down. So that also is self-limiting on growth. And the cause disease is just one particular instantiation of that more general problem that we illustrate with talk about barbers and string
quartets and the like.
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