America’s Economy Is Entering a New Era — ft. Noah Smith

The US stock market started history's greatest way of a wealth creation.

“From factory workers in Detroit to farmers in Omaha.”

Anyone can own a piece of the great American companies. But today, our most innovative companies are staying private longer, which means every day Americans are missing out until now. Introducing VCX, the public ticker for private tech. Now available wherever you buy stocks.

Visit getVCX.com for more info. Carefully consider the investment material before investing, including objectives, risks, charges, and expenses. This sent other information we found in the funds perspective. At getVCX.com, this is a paid sponsorship.

Hey, it's Ryan Reynolds here for Mint Mobile. Now I was looking for fun ways to tell you that mince offer of unlimited premium wireless for $15 a month is back. So I thought it would be fun if we made $15 bills. But it turns out that's very illegal.

So there goes my big idea for the commercial. Give it a try at midmobile.com/switch.

Up from payment of $45 for 3 months,

$90 for 6 months, or $180 for 12 month plan required, $15 per month equivalent taxis in Bsextra. Initial plan term only greater than $50 gigabytes in Sloan at work is busy, C-Terms. Günstig ohne App. By Aldi gibt es ein Preis für alle.

This week, Bio yogurt with crispy muesli, 150 grams for $980 or egloram spinaat, $750 for just $1.69. And decker weitere Angebote in deinem Aldi Nord. Aldi. Good is for all. Today's number five.

“That's how many cups of coffee per day are safe for most adults,”

and may even have health benefits according to the American Heart Association Ed. What do you call sad coffee? What's up? Brasso. I love the joke.

To start our Friday episode. How you doing? I'm Tonka.

I'm in LA, which I absolutely love.

I would turn the camera around, but I'm worried about the tech team. I would freak out. But I'm overlooking Hollywood Hills. And I absolutely love it here. I love California.

I love Los Angeles. It is 80 degrees, but it's dry out. So it just feels. I mean, when you and I were in Miami and it was 89, it felt like we were in a bare fryer.

Suffocating. Yeah. At 80 feels pleasant. That's very nice. It's, yeah, I love it here.

So I'm happy. I'm a little bit jet lagged. And unfortunately, what the podcast that's start, you think I'd figure this out at 2pm and London, started 6am in LA.

So I was up at, I was up at $0,800. This morning. How are you at? Enough about me. I have enough about the espresso part of this.

What's going on with you? I'm very excited because tonight I'm going to go see the Odyssey. So I've been waiting for over a year. Have you seen it? No.

It's the same thing. I want to see it in IMAX. I want to see it with my boys. So all of these things get in the way of actually going and seeing it. Exactly.

I just sort of caught my losses. But not going to go see it. I'm actually going to go see it regular. But that's okay. I just want to get out there and see it.

So I will give you my review. But I mean, the reviews have been spectacular. 98% of Rotten Tomatoes. Critics calling it a flawless masterpiece. So I'm, I'm very excited about it.

Yeah. Well, I'm refusing to see it because black women is is Helen and a transgender man as a warrior. That's the line. That's the line. I'm being accurate to how you cast a miss, which to me is an oxymoron.

You get to do whatever the fuck you want. It's a myth, folks. Anyways. I can't get over that. I would like to know the percentage of people who are upset about the Odyssey

costing and who believe that the Odyssey is a factual historical story. That would be a very interesting to assist as a suspect that we should get some survey data on. But yeah, that wasn't enough to keep me away. I will be watching it and I'll be very excited to see how it is. Who knows, maybe I won't even like it.

I think you're going to love it. My, yeah, I've heard nothing. I, I go on with such a bias because two of my favorite films are from Christopher Nolan,

“Oppenheimer, and I think the perfect, perfect movie.”

At least for me, who's favorite star of any movie is Hitler, it's Dunkirk. I think I say indistella, that's my favorite. Really? I think I need to. Two adibles and one chin or stellar again. I didn't watch it again.

I kind of didn't get it. I rewatched it recently and then I rewatched it again because it was so good. And I think gotten how good it is. That is profound and moving on multiple dimensions. So that's my favorite, Dunkirk's great too.

The dark night is up there for me.

Great movie. Yeah, the mental.

Yeah, the mental is good on the visibility once.

“I think I has a bright future in Hollywood.”

Although I still and very upset. The thing I didn't like about indistella, it stuck on my cross. What about the dude on the spaceship who was up there for 22 years or 12 years? It's just roaming around waiting for Matthew McConaughey and and half the way to get. I mean, they're on that wherever they were and they come back after 28 years.

And he's been there 12 years and I'm like, hey, dude, what's going on? What the fuck do you think is up? Nothing.

I've been here for 12 years.

I found that very upset. Very upset. That's kind of the point. But yeah, I agree.

“Well, we have a very good and exciting interview to get into today.”

We recorded this conversation live on Substack earlier this week. If you'd like to catch the next live stream, we will be doing plenty more live streams. Then go to profgmedia.com where you can subscribe. We do a lot of these live streams. They're a lot of fun.

I thought it was fun to do this live with an audience as well.

So without further ado, I'm going to transition us into our conversation with no Smith. Now that we are past the halfway point of the year, we wanted to take a step back and look at some of the biggest forces shaping the economy. And to do that, we have invited someone we are a big fan of. He is a prolific writer whose work spans everything from AI to inequality and demographics.

And he has a way of explaining very complicated economic trends in a way that is both insightful and accessible. And that's why we really like his work. So we wanted to ask him some of the biggest questions that we are wrestling with right now. For example, are we in an AI bubble? And if so, what happens if it bursts is rising in equality, becoming a threat to economic growth and also has America officially reshuffled in the global order.

So without further ado, here is our conversation with Noah Smith, writer of the no opinion blog. Noah, thank you so much for joining us on profgmedia markets. And thank you so much for joining us on a live stream, very exciting stuff. Thanks for having me on. So I want to get started here with some recent AI news, which is the release of the Chinese model,

Kimee K3, which is caused a lot of concern in the AI world. I mean, what we know about this new model is that it's open source. It's very cheap and it also outperforms anthropic and open AI's models on a variety of benchmarks, which has a lot of people worried and thinking about this idea of is China about to supersede the US when it comes to AI. Are they about to steal America's lunch?

Let's start with that question.

“What do you make of Kimee K3 and what do you make of the China vs US AI race at this point?”

So with Chinese models so far, the pattern has been that they test very well on benchmarks and then that their capabilities are very brittle. When you go beyond just sort of teaching to the test, if you will, that's one issue. This has been a very consistent thing. So when we've seen, you know, more sort of more comprehensive tests of Chinese models abilities, they've been increasing more slowly than the American models.

There's also a question of, you know, to what degree this Chinese model is simply, you know, an American model that was copied. You know, so in terms of whether export controls are working, the overall story has been again and again that export controls do work. In addition, China has far less compute available for inference. So, you know, most of what differentiates these models right now is on their performance is how much compute you can use for inference. You know, how not how much use to train the thing, it's how much you, you know, you can let them think really.

And so China has a lot less compute there and AI and export controls have been very important in limiting China's compute on inference on the capabilities. Despite so you know, even if you exactly steal the weights for Claude, which maybe they did, who knows, I'm not a technical expert. So I can't say whether they how likely that is or maybe use a distillation thing, so it's it's very similar to Claude. So even if you do that, you can't run at Claude's capability most of the time if you don't have the inference compute.

So export controls have been extremely effective in terms of, and that's not even counting the export controls on chip making equipment, which have been very effective in keeping the Chinese chip making industry well behind the, you know, the Taiwanese Korean, etc., and US industry. And so I think export controls are still quite effective, and this may turn out to be another deepseek moment where we find out that the, you know, reports of, of extremely advanced, you know, like world beating capabilities turn out to be very exaggerated.

Get credit for. Well, I mean, obviously, I have a security, like humans are vulnerable devices, and so there are, you know, viruses that that kill all the, you know, most of humanity or all of humanity don't naturally tend to evolve, because those viruses will burn themselves out.

But, but you maybe you can make one, you know, if you intentionally design it, and we are controls on biolabs are very weak.

You know, we need to implement stronger controls on the places where these things could actually be made and disseminated in the physical world. It will be a while before we get these fully automated robot labs, but humans can make stuff, and, and human to make, you insert some genetic mutation into a virus, and then email it to you, and email it to you, just mail it to you through the post office. They don't necessarily know that the mutations they inserted into, you know, common COVID-19 are going to turn it into a virus that just kills all humanity.

They don't know that because they don't, they're not AI, they can't understand. So we need to deploy a defense in depth against doomsday viruses, and that's just not being done yet.

“Although people are starting to talk about it more, but if you're not scared about this, you should be more scared about this than you are.”

So one of our big themes of predictions is that China is engaging in modern-day dumping, but instead of steal this time, it's where they are. And I think there is evidence that token usage from Chinese models is exploded. Any thoughts on the notion of AI dumping? China could absolutely subsidize, you know, subsidize inference, so that it's models are temporarily cheaper, and then this throws a wrench into the profit, you know, profit loss of anthropic and open AI. And there's, you know, they cause them a crash, open AI, and anthropic god of business, or don't have enough money to like train the next generation of models.

And then, you know, then, then China's eliminated some American AI advantage there. It's absolutely possible that could happen. If, but at the same time, we have seen anthropic profitability is expected to be positive on an operating basis this year.

That's amazing for a company that with that amount of growth. Like usually if you're investing that much, you do not, you're not profitable, like how long to take for Amazon to be profitable.

“Many, many, many, many, many, many years. And anthropic's doing much more quickly, usage is exploding. I think open AI will probably get there, and then so far the profitability of these companies doesn't necessarily seem to be under threat.”

If we see anthropic and open AI struggling to find the capital to invest in the next generation models, then we should be worried until then, there's nothing that AI dumping really does except for attack, open AI and anthropic. Now, maybe you can make an argument that it's hurting some of our players further down the line like Google could be getting hurt, or, you know, maybe meta has been driven out of the AI race by the fact that they can't, you know, afford to keep up with Chinese inference. Because of dumping. So that's something that deserves to be looked into, but so far, if open AI and anthropic are still if their profitability is still improving rapidly, I'm not so worried because that's the mechanism by which dumping would hurt us.

Meaning it appears another theme we've seen is that we've gone from worrying about a supply crisis where there's not enough inference compute and energy to potentially demand crisis, because it feels like a lot of the initial demand creators, or who are supposed to create demand, whether it's they have not created the demand that initially anticipated on the front end, so they've taken all of their infrastructure build out and are running it to what appears to be a narrowing group of, to demand sites, specifically open AI and anthropic.

“Do you think there's any fear that we're moving, or do you see any evidence that we're moving from a supply side crisis to a demand side crisis?”

I haven't seen evidence of that yet, but it could happen. I have not seen evidence of a demand side crisis yet, demand for all these things continues to explode, that demand is going to American companies, a lot of that. We've seen demand for cheap substitute from China also rise, that's inevitable. Like I said, you might say that, oh, Gemini isn't as good Google's falling behind because there's not enough demand for their products, because they're being, as a slightly lower down the hierarchy, slightly behind the frontier model, they're being out competed by Chinese models with subsidized inference.

So, so you could see that. I think the bigger danger on demand is, you know, sort of a basically a collapse due to over temporary over use.

And then they just token max token max token max and then this drives demand up and then, you know, open AI and anthropic and Google and whoever make reckless capital budgeting decisions based on the idea that that growth curve will continue. And then it doesn't continue and it collapses because people are like, wait a second, we're not actually building shipable software, we're not shipping profitable software with this with all these tokens, what are these tokens going to produce.

Then we can see a crash, right, and trying as companies might be better able to weather that crash than us, because of state subsidies, you know, keeping them alive.

“And keep in mind, by the way, that most of these states subsidies are delivered through below market rate bank loans, not through the government mail zero check. So that's how most of these subsidies are actually getting done.”

The United States has the capability to match that if we were to use modify the Dodd-Frank legislation to get our big banks lending to AI and also the manufacturers, by the way, if we want to do industrial policy, if we want to fund it, if we want to subsidize. It's not by mailing, I mean, mailing government checks like we did with the Chips Act can be effective, but I think the most effective and durable way of subsidizing things is actually the bank loans. And we already have the legislation in place, that's Dodd-Frank to be able to do that. All we have to do is say, hey guys, hey, JP Morgan Chase, if you lend to this, these strategic industries, whatever, you can get, you can loosen your tier one capital requirements.

And then they do, the loans start to flow. And then so we can do that. We've already done the repression part of financial repression.

We just have to do the lending channeling part. If we want to do the kind of subsidies China does, we can actually match that pretty easily. There isn't evidence that there is no demand, I mean, we've seen the demand we've seen how much money is flowing into the ecosystem. If I could kind of tweak it, it would be there is a concern that the demand that we all seeing or at least the majority of the demand that we all seeing is artificial.

“You kind of hinted at it with the token maxing, where these companies are like telling their employees, like, doesn't matter about the ROI, doesn't matter how you do things like, you need to use as many tokens as possible.”

We had the issues with the circular financing stuff where you had these kind of circular deals where investors turned out to be various AI companies, customers at the same time.

You have the fact that a lot of the revenue that's being plowed, a lot of the business model is predicated on the spending of OpenAI anthropic who are currently money losing businesses.

And so the money that they're spending, it's not their cash flows that they're spending, they're spending their investors money. And then to your point, there's also the subsidies side of it. If you have companies in China who are receiving subsidies through whatever mechanism. You're going to start thinking about doing the same thing over here in America. That translates to me as, yes, tens, hundreds of billions of dollars in demand, but demand that doesn't feel quite organic. And that feels in a lot of ways forced or artificial, which makes me think, well, if we were to take our foot off the pedal here, then something might collapse, something might break in a big way.

“What do you make of that argument and not for you? Do you think there's merit to that?”

Explain to me artificial demand. Circular deals where you have Nvidia and OpenAI investing in each other and then being each other's customer. How does that create demand for the end product, I don't understand? Well, it creates demand for Nvidia's chips. That's investment. So that's like, yes, it's demand for the upstream stuff.

So right now, it appears like a lot of the usage companies are because of these metrics around such as we're tracking how many tokens you're using as opposed to tracking or putting in place real ROI. And the thought is, some of that demand might fall off. I think the more puncturing issue is, can they maintain this level of demand once they move to a pricing system that sustains. I use Cloud, I think it's called Cloud Pro, or the one that's 200 bucks a month. Supposedly, it's costing them a thousand to two thousand dollars to service me.

And the question is, at what point does this demand, can't it sustain it anything resembling the growth that it's been, that the street wants to see to support these private valuations once it's priced to its actual cost? In other words, is this business model work? Do you think this business model works? I don't know. Fair enough. I don't have a way of tracking that. I don't know that other people do either. I think, you know, I wrote about that. I wrote a post about that, like called how much software do we really need?

Like that doesn't sound like a great benchmark for profitability. I hear anecdotes. I don't, you know, I don't have hard statistics on how much this is being done, who's doing it. This is all internal, none of the status public.

“And anecdotes don't equal data. And I think we should resist drawing excessive generalizations from anecdotes.”

I don't know how much value is being produced because value, first of all, it could be that lots of values being produced, but it won't be realized for a while.

So if a lot of this is learning, if the value of using this stuff is learning how to use it, we won't see that for a while. It's not going to show up, like, I use this many tokens and I ship this much profit worth of software. This, I get this much profit from the software I ship with the tokens that I used. And that won't necessarily be that clean. You know, if you look at how productivity is measured. Chad Cyberson does a good job of measuring this productivity, but it's really hard. You know, like, you can look at various established industries like ready mix concrete or something.

“And you can look at how you can really, you know, the production process, you know, the use cases, you know exactly how this stuff is turned into value, you know, inputs are turned into value.”

But for AI, you don't, and so there's a lot of learning here, right? So the classic example here that everyone sides is electricity.

One electricity was first introduced to manufacturing. You know, by this time, everyone is using it to like light their homes or whatever.

But but when electricity is first introduced to manufacturing and like the 19, you know, 1900s early 1900s, um, they just, they had these vertical factories that were turned to these big crankshafts, or the entire conveyor belt moved at the same speed, because it was driven by steam boiler, they ripped out the steam boiler, put in electric dynamo and drove the same thing found out, wait, it's less energy efficient electricity sucks. They electricity maxed, right? They use a improper benchmark as there, you know, and then they tore out the dynamo's put back in the boiler as an ignored it.

And then about 20 years later, people figured out, oh, if we completely reorganized how the factory worked and ran work stations in parallel, it's in series, we could increase productivity a lot. And then you got a very rapid increase in productivity by a factor of like three to five or something like that, just massive, massive burst of productivity growth with the reorganization of the factory. So we got modern looking factories, not these like ancient looking, you know, multi floor factories that now are part of like old Mickey Mouse cartoons.

And so, um, was the initial use of the, uh, of the, you know, electricity to try to replace steam directly was that wasted money. I don't know. I can't tell you that that was wasted money because there was learning here, we learned what didn't work. And that was probably an important input into the, you know, people who redesigned the factory later on and got this huge increase in productivity, they had to see what didn't work. And think about what you couldn't use electricity for. And so, I'm not sure that token vaccines wasted because all these people are learning what you can't use AI for, what it does, what it doesn't do.

And it's forcing a lot of people to think about AI first production processes.

So now we're, we're, everyone's already talking about building AI first businesses and AI first business models. Maybe a couple people have, you know, um, my friend Edmund Zagran has this company where he's trying to do this.

“We're, we're getting on this much faster than the people did with electricity because information travels, you know, travels much faster, right?”

So we know we need to do this faster than they knew that with electricity, okay? We're already on this. And so whether or not it's going to take us 20 years this time or maybe only five or something to build AI first business models that realize enormous productivity gains, I can't say. And whether that's even possible, I can't say like there may be inherent limitations to AI technology once you scale things up from ask one AI, some questions to have all these AI agents interact and do business together.

There may, that may not scale up as well as I think it does as people think it does. I would guess it does scale up, but maybe it doesn't. We don't really know yet. And I think, um, if and when suppose we do end up finding massive waste of massively increased productivity with AI, the blind alleys and dead ends that we spent all those tokens on before may have been an integral and important part of that. And so that productivity may be realized in a bit. Now whether in interim, there's a big crash and what that implications are for producers like open AI anthropic, like upstream producers like Nvidia.

Back off to the break, and if you're enjoying the show so far, send it to a friend and please follow us on YouTube, Spotify or wherever you get your podcasts.

“Support for the show comes from BCX, the public ticker for private tech. For generations American companies have moved the world forward through their ingenuity and determination.”

For generations, every day Americans could be a part of that journey through perhaps the greatest innovation of all, the US stock market. It didn't matter whether you were a factory worker into Troy or a farmer in Omaha, anyone can own a piece of the great American companies, but now that's changed. Today, our most innovative companies are saying private rather than going public. The result is that every day Americans are excluded from investing and getting left further behind while they select few rep all the benefits.

Until now, introducing BCX, the public ticker for private tech, now available wherever you buy stocks, BCX by fundraise, gives everyone the opportunity to invest in the next generation of innovation, including the companies leading the AI revolution, space exploration defense tech and more.

“Visit get vcx.com for more info, that's get vcx.com, carefully consider the investment material before investing, including objectives, risk, charges, and expenses.”

This and other information can be found in the funds prospectus at getvcx.com. This is a paid sponsorship.

Support for the show comes from upwork. One of the biggest breakthroughs for an entrepreneur is realizing that you don't have to do everything yourself. Upwork helps growing teams quickly bring in specialized freelancers, so you can move faster and take your business to the next level. Upwork is a one-stop platform to find higher and pay expert freelancers across more than 125 categories, giving you fast access to specialized talent without committing to full-time headcount. With business plus, you can access the top 1% of talent on upwork, and with AI powered short listing, you'll get matched to the right freelancer in under six hours, no endless searching required.

Upwork also cuts down operational hassle by handling things like contracts and payments in one place, so you can spend more time running the business. Thousands of growing businesses already trust upwork to higher flexible high quality freelance talent for everything from one of projects to ongoing support. It's free to sign up and posting a job is easy. Visit upwork.com/markets right now and post your job for free. That is upwork.com/markets to connect with top talent ready to help your business grow. That's UPWOORK.com/marketsupwork.com/markets.

Running a business shouldn't feel like surviving a software group project, one app for accounting, another for inventory, another for sales, and some how, none of them talk to each other. That's where Oru comes in, and all in one business management software that brings every part of your business together, from sales and accounting to inventory and marketing, all in one powerful platform, no messy integrations, no bouncing between tabs and best of all, no spreadsheets. Stop managing software and start managing your business with one unified system. Try for free today at odio.com/balks. That's odio.com/balks.

We're back with property markets. Something we've been covering a lot related to this is just the public perception of AI. As more, the more dollars we plough into this technology, the more we roll ahead, it seems the more pushback we're starting to see in the general public and in the political level. We have obviously seen Kathy Hocall, the governor of New York, who has issued a pause on data center production, and it seems like that is growing as a form of AI regulation, as I just hit the pause button on data centers, but it also seems to be related to some of the wealth inequality issues that we keep on seeing a kind of getting worse.

Every passing year in America, the top 1% of Americans control roughly third of all US household wealth, which is an all-time high today.

“To what extent do you think that these two issues are linked and how much of a problem do you think wealth inequality really is in America? What does it mean for the US economy?”

When wealth inequality goes from, you know, when the top 1% has like this many trillions of dollars versus that many trillions of dollars, it's not a number of humans understand.

You know, you need data, but you know, then you have, you can have like economists who gather data on this and then argue about how much is really happening because it's hard to measure this top well.

And then you have people arguing, but I don't think the sheer numbers like, oh my god, look at how much these people have. I don't think that's the way that wealth inequality becomes a problem in normal people's minds. I think instead people think about inequality of power and people think about the companies that these people control and are these companies being run in our best interest. Everyone knows these people are getting rich, small changes in exactly how much they're getting rich or even large changes in how much they're getting rich, don't affect the basic idea that, you know, people are being squeezed at their jobs and they're being squeezed on their finances and they're being squeezed in their consumption.

And they don't necessarily see like, and then they hear, oh, all these stories about how fabulously rich the people on these companies are getting.

“That's the way in which I believe wealth inequality comes home to real people, that's what we need to address.”

The idea of can the rich guys continue to do things that make them get richer while other people struggle. And I think we need to attack that from two sides. Number one, we need to make sure that normal people don't struggle. Okay, if people can make their, like if people have less credit card debt and if people have, you know, more wealth in their houses and you know, which is where normal people have their wealth by the way, normal people have their wealth in a real estate market not in stocks. But if people, you know, but also we can give people like, you know, wealth in terms of like sovereign wealth on what Alaska does with the permanent fund.

But, but the other thing we need to do is to make sure people know that these rich guys are ultimately under the control of the people through the government.

That the government, although the government doesn't necessarily tell you what to do with all your businesses, central planning, at some sense that these big corporations are serving the interest of the nation. I think that during World War II and the early Cold War people had a very strong sense that big companies like Ford, US steel, Alcoa, GM and all these, the Boeing and all these companies were serving America, these were American companies working for America and working for the people of America through the nation state.

We established that. So Sam Altman, floated the idea of a government stake in OpenAI. He's right. And that's how this, that's how this has to happen. And so sovereign wealth fund is really the best policy we can do to do all of this. So sovereign wealth fund says, so Alaska has the Alaska permanent fund, you know, that is right. So it takes Alaska and oil revenues, natural resource revenues, the redistributes the money, the people of Alaska, we need to do that with, you know, tech and AI and these strategic important industries, where we don't, you know, have,

have the government, micro management, central plan and control business decisions, but we redistribute some of the capital income. And if necessary, we could, if our companies were going rogue and doing stuff that was against the interest of the nation, we could have, you know, the government as a shareholder consensus, one of the shareholders meetings, instead of just regulation and law, in addition to that, in addition, we can have someone go to the shareholders and say, hey guys, you need to act an interest of America and the people of America.

“And that's what we need that we need people being reassured that they have some sort of stake in this, not just financially, but also in terms of power. I think that solves the problem.”

I would push back on to know, I think, I think, sovereign wealth funds are used when a nation that's blessed with an inordinate amount of natural resources has excess capital beyond their spending commitments. Well, in the U.S. would be nothing more than issuing debt that adds going to have to pay back to fund the sovereign wealth funds such that a current administration could pick winners and losers, which governments usually aren't very good at. I understand the need to invest structurally in certain industries that have defense implications, but generally speaking, when the administration decides we should buy 5% of open AI with debt fueled capital.

It will create regulatory capture and disparage or diminish the other competitors. I just can't find evidence of where that makes any sense. And ultimately, doesn't just end up with a warehouse full of unsolved allorians or air France, a sovereign wealth fund. I just think it's indefensible at this point in picking winners and losers, but in administration, many of whom have no experience in business or their experience in business is bankrupt season and failed subcontractor.

“Again, sovereign wealth fund. I think it's a terrible idea. Where am I wrong?”

If you don't want to sovereign wealth fund pick winners and losers, you can just have it by index funds. I invest in stocks, but other than, you know, I invest in friends startups, but I don't really sit there thinking I think. I don't pick, I don't pick winners and losers, I buy the index, you know, and then I buy the, you know, Vanguard, Vanguard index fund. And you can have the government do that too.

But then you're not picking winners in terms of industries or companies or things like that. So if you don't want your sovereign wealth fund to do that,

then you don't have to have it do that. It's really easy to not have it do that. In fact, the sovereign wealth fund proposals that I've heard involve explicitly buying the index don't, you know, so I think that ad hoc stakes in companies like like open AI are are dangerous for this reason. But then you can easily solve that just by buying the index. So if you look at the labor share of income, it's going down by any reasonable measure.

And so if you buy a very broad index of stocks, all you're doing is buying the capital, some of the capital share of income and and then redistributing it.

“So you're doing that. So so that fear I think of of picking winners and losers. I also think that that picking winners actually has a much better track record than people think I think that that idea that this always picking winners always fails.”

It doesn't. It has some pretty predictable failure modes that we see a lot sure, but it's not like the the simple easy nostrum of oh picking winners always fails guys if if I can label something picking winners, then it's something we shouldn't do that's been proven wrong again again. But that said, we don't have to pick winners with a sovereign wealth fund. We can just buy the index so that's not a that's not a worry. I think you should worry about or or it should be a reason to encourage a broad sovereign wealth fund that buys index funds rather than the kind of policy job Donald Trump is doing with ad hoc stakes individual companies, which I do have very strong misgivings about.

I think that makes sense you're saying as opposed to picking winners and losers support the US economy and and also give give consumer or American citizen similar to that I think it's the super return fund or whatever it is an Australia chance to participate and what has been largely compounding. I guess the issue is or the the caution I would throw out there and I want to get your response is that we don't have surplus so any any investment any incremental investment in an index fund or a company is going to come from debt, which will ultimately be taxes on either current or future generations.

Not just try and maintain lower deficits and let individuals decide what companies in other words ultimately that's saying that the government is a better stock picker and and indexes effectively become stock picking when you buy the S&P index you're buying 40% of it's going to.

“Going to seven or ten companies isn't this isn't this taking isn't this me saying and fantasizing the public saying I'm going to run up your kids credit card and then I'm going to pick.”

I'm going to invest in index funds rather than just getting government out of the way and letting you buy your own index funds the main.

And so if the government does it how does the person who doesn't have money redistribution okay so it's a redistribution because then you would have some sort of mechanism for returning the gains to citizens. Yes, that's the yes that's the point redistribute capital income to regular people so you got some person who works in a gas station that person could theoretically. You know like shrimp and saving by a tiny bit of index fund but the transaction costs are high the information costs are high they don't understand what to do it and practically they can't borrow like what is the government borrow at a couple percent.

Now that interest rates have risen a ton what's what's the what's the 20 year treasury rate I don't even know it's like it's like a few percent you think the gas station worker can borrow to a few percent to buy an index fund you crazy that this absolutely not. There's two pieces here number one is it's redistribution area because if you if you have the government buy services you know like pay for old people's health care or something or maybe build high ways or whatever or provide for the national defense if you have the government do those things that benefit the gas station worker just as much as they benefit a rich guy okay that's redistribution area.

“And so that's the first benefit the second benefit is insurance so if you debt is unconditional it's on you know it's like you pay the same interest rate back whether or not AI takes over our economy.”

But if you buy the AI company part of the AI company and then you're able to redistribute that income in the future it functions is insurance because in the state of the world it's a state contingent asset because in the state of the world where AI takes over the whole economy.

So that's like it'd be a fan of trump bonds or baby bonds.

“Yeah, baby bonds. I mean that's been done in other countries and it's been it's been successfully.”

Yeah, absolutely. 100 percent and that's exactly what you do that's that's a thing you can do so so you can choose to pay down America's debt if you think inflation's a problem.

And you need to you know pay down some of the debt to reduce inflation. You can use it. You can do baby bonds if you think it's better to just give people cash to you know you be I fund you be I you can also just do public goods you can use this for research and development spending. To improve productivity and a Paul Romer sense you can use this to do national defense if we need to build up for big war. You can use this for building highways if we need better infrastructure. You can use this to build you know in critical infrastructure.

And you can use this for in kind redistribution like buying old people health care, which is you know not as broad based as baby bonds, but it's pretty broad based because everyone gets old and everyone gets sick. And so you know you can do a lot of these these redistributionary things. So so there's in the insurance benefit there's the redistribution benefit and then there's the fact that the government's borrowing costs you're talking about running up these kids credit card, but you're not talking about the credit card because a credit card interest rate credit card interest rates is through the roof where the government interest rates are few percent.

Even after we raised interest rates to fight inflation the government is the cheapest borrow rate and unless you unless you believe that there's a good chance that the government is going to get below treasury returns on its stocks over the maturity of government debt that it takes out to buy these things which is a possibility. I mean that's.

“We haven't seen negative returns or we haven't seen below treasury returns I think on 20 year you know S&P whatever ever before but we could see it for the first time it's not out of the realm of possibility.”

We could take a bath we could actually lose this right if you use state unintended debt to buy state contingent assets there are states of the world in which you take a bath you you lose money.

Okay the government can lose money and this is the argument that people used to stop bush from investing social security funds in the stock market back in the day. But had he done that we would have let either less federal debt or much larger social security benefits a much more about social security trust fund today than we do it was actually the right idea and people use you know sort of the specter of risk to to. To dump on it to stop it back in 2005 and yes there is risk but it's aggregate risk because if if corporate America is doing so bad that the stock market does really bad over a 20 year period or whatever even a 10 year period that especially 20 year period.

Then America as a whole has done badly it's hard to see a case in which the stock market does crap under performance treasuries for 20 years in which the regular Americans are thriving that's a weird state of the world I'm willing to bet a lot against.

It seems like you and I I mean you would agree that the Trump accounts have been a good idea I person I've talked about this on our show.

“I've it's one of the only policies that I've seen out of this administration that I really support and that I think is moving in the right direction for a lot of the reasons that you're describing.”

One I just want to confirm that you think that Trump accounts are kind of the right idea I wish we could just change the name because I don't see why we need a politicizes thing but the idea of. Gifting a child at birth an investment account automatically buys them into into the S&P into the aggregate capital markets of America that to me seems like a very good thing and a step in the right direction so one I'd like to just. And then two we're tackling like the biggest most difficult most unanswered question in economics which is like at what point is.

U.S. debt unsustainable power bad is it really. I'll pose that question to you I know it's kind of unanswerable but I'd like to get your take US debt is on a very bad trajectory right now. I said if you take out debt to buy US stocks and to have the government buy US stocks and you have the option to use the proceeds from the stocks to repaid the debt. If you structure the sovereign wealth on that way then. It is not it will be more sustainable than it is.

And in fact this is what Japan has done so Japan on paper has a higher debt to GDP ratio than we do. But they've taken you know they've had the government invest like a hedge fund and made very good returns.

The same we'd be betting on us I mean Japan often invest in foreign assets but sometimes in the Japanese market too so that you know the B.o.J. by stocks and Japanese companies and things like that and the you know the topics is done well. So. Even if we took out more debt than we have in order to buy shares in corporate America that would. In every state of the world except the long decline stagnation of America stayed in every state of the world except that it would make our debt problem less of a problem right just like if you have a bunch of debt.

Okay and then you take out some more debt to buy stocks and you're able to hold that for 20 years right. And then your your financial personal financial position actually just improved. You can't do this because of liquidity constraints the government doesn't have those liquidity constraints. Curious to get your take on the controversy around data centers some of the local harms of data centers that people doubt. Our real for example if you're very close to it it's noisy.

It does drop power from the grid and that can compete for power with with local communities some of the things people worry about are not real like water water usage that's not a real thing. Data centers have some a reservoir of water that they run to cool stuff and they lose extremely little water and they don't pollute any water. So the water thing is made up the other the other harms that people tend to emphasize a little bit less are actually real.

“If you don't want data center near your your house that's that's your right you can you know I don't because I think data centers and go elsewhere like you know if if New York will build the data centers Texas will.”

Alabama will places will they bring benefits to the local economy that that can then be seen in tax revenue local tax revenue can tax them.

So I'm not so worried about local about this data center nimbusum first of all that's my first take my second take is that I believe without solid evidence so you know.

I don't have solid evidence for this one, but I believe that the that the local nimbusum over data centers is to some degree to some substantial degree not all but to some substantial degree. And expression of broader fears over AI itself that people don't like that yet that AI will take their jobs. You know basically take their jobs I don't think most people think that AI will kill them yet I think people are mostly scared of jobs and that fear manifests as an instinctive opposition to AI. That that filters through to opposition to local data centers.

I think it's in effectual opposition because banning local data centers in New York or whatever community won't actually reduce the amount of compute available to the AI industry.

“But I think that that's what's motivating it to some degree.”

We'll be right back and for even more markets content sign up for on newsletter at proffgmail kits dot com. There's a civil war happening in the democratic party and if there's one place that's playing out most clearly it's in Michigan.

A crucial standard primary battle in Michigan that could determine control of Congress in November.

Congresswoman Haley Stevens and up dual LCA progressive Democrat and a moderate Democrat in the end it all comes down to the dreaded E word electability. But in Michigan one candidate is trying to turn the electability concept on its head if we think that voters walk around asking where do I sit on some theoretical left right spectrum. Then in theory the bulk of the voters are somewhere in the middle. The problem though is that that model hasn't really accurately predicted our politics for a very long time.

“If Michigan is wanted moderate, why would they have elected Donald Trump twice?”

Dr Abdul El Saiyan is making the progressive case for America first and he's trying to settle the Democrats at the illogical battle in the process.

This is about the many versus the money. I must stand here and this is America actually catches every Saturday on YouTube or wherever you get your podcast. We're back with property markets trend that we have been watching and kind of following your coverage of is the fatality crisis in America. The fact that the US fatality rate fell to another record low in 2025. How big of a problem do you see this, this fatality crisis? And what kind of impacts do you think this will have on the US economy, perhaps some impacts that may be people on seeing or recognizing right now?

It's not like there's some cliff we fell off and like, ah, you know, for utilities low, it's some, you know, old people will clog the top ranks of companies

and will be more less nimble, less able to invest in the future. You know, less our companies will get just less creative and dynamic. Slowly, you know, the debt burdens and tax burdens will go up and social security benefits will be cut. And you know, they'll be the slow trickle of making it harder for, you know, just not to the heart of people to live because you have fewer workers supporting greater number of tyries. These people will have to do more uncompensated elder care people will have to pay more taxes to support elder care.

You'll see immigration become actually more content just because on one side you'll see people say we need to bring in more immigrants for labor shortages.

On the other side you're going to see like immigrants will go up faster as a percent of population because we're not reproducing local people as fast. And so that's going to freak people out more. So you're going to see immigration become more contentious even than it already is so that that's going to be difficult. There's just all these these problems you get from a load, a load TFR that trickle in slowly and subtly and you don't see them like like, oh my god disaster. It's corrosive. Do you think that this is the kind of thing that will force us to sort of rewrite how we think about social security, how we think about taxation.

“Like is this one of those era defining events that may change the way we organize our entire economy?”

Yes, but I think it's less of an event than a trend.

It's going to happen slowly. We already should have realized there's something very wrong with the pay as you go method of social security. Because as Paul Samuson famously proved in his paper about dynamic inefficiency back in I think the 50s or early 60s social security, a pay as you go system like social security is efficient. You know, if and when you have a growing population when you have a slow very slowly growing population or shrinking population in the long term social security is dynamically inefficient.

You just it has big economic problems. And so that's that's hitting already that's hitting already. And so so pay we we needed to shift to a fully funded system. We can't now because expensive one time shift. And instead we're going to have to have constant bruising political battles over benefit cuts and retirement age raises and you know lifting the cap on on the attack on taxes and making the system more redistribution area and all these things we're going to have all these fights over. We're going to avoid these fights and it's baked into our system.

And so so yes, it's happening but it won't be a thunderbolt that happens all the once is the best solution in your view. Some form of redistribution does that is that what we need to all get on the same side on when you when you describe these kind of political debates that are inevitable is that the main thing. The part of what we need because when you have benefit cuts that hurts you know I mean if you're rich and you get your social security benefit cut benefits cut you care no. But if you're poor and your social security benefits cut you starve like that's all you had.

And so obviously the more we cut benefits which we will need to do to maintain the solvency of the system the more we redistribution will need to do to prevent human suffering. The insolvency of social security creates a greater need for redistribution across income gaps.

“And so I think that's absolutely one thing we need to do.”

We obviously need to be looking for ways to boost the fertility rate and to continue bringing immigrants without you know freaking out freaking people out. We need to do both those things especially high skilled immigrants you know add lots and lots and lots to our revenue to our coffers are a huge fiscal plus so we need to look at how to do more of that. Which we're really not doing right now it's the opposite of what we're doing right now. And we need so we're going to need more redistribution we're going to need to to tighten our belts and do more redistribution at the same time.

In order to keep the system solvent and keep it supporting old people and have old people not be synonymous with poor people as they used to be. And so and at the same time we need to be looking to address the root causes of the problem here for the long term. What would you say to someone who believes that redistribution is veering on socialism people who say, I mean obviously you've we've seen the wealth tax proposals we've seen the building our tax proposals which are kind of way over here on the extreme end of things and a lot of people say that's not the right direction.

“And I think those arguments might have some merit.”

But there are also arguments that you know increasing taxes redistributing in and of itself is not the right path it's not the right solution we're kind of waiting on government waiting on some centralized system to solve all of our problems to the people who take that view.

What's your alternative? What's your what's your better idea? They have nothing. Nope, nobody who just like, well that would be socialism has any says any alternative other than just like, you know, more money for my bank account.

“I think we're using the words and correctly though socialism is supposed to be used to mean at least government controls the means of production which just doesn't have a good track record.”

But and then they when you ask where does it work? They'll point to Northern Europe. I would argue Northern Europe and many instances is more capitalist than we are.

I think what most socialist today really mean is a capitalist economy that has a stronger social safety net, more progressive taxation and more investment in social services. It feels as if a lot of this argument is an inefficient argument around some antics. But those of us who think of socialism is East versus West Germany, North Korea versus South Korea, Soviet Union versus, you know, or USSR. I mean, the 50s and 60s here had much higher tax rates, much more public infrastructure investment, great society.

But we didn't call it socialism back then. We just called it healthy capitalism isn't a lot of this words.

Yeah, you're exactly right. Like the word socialism isn't magic fairy dust that you can sprinkle on something to like make it go away.

Like that that that might have worked for like a few years in the 1980s, but but that dog will not hunt now. And so you're right. It is it is totally semantic and that's isn't that. Just socialism is, you know, like there's a shrinking and rapidly aging cohort of people for whom that sort of argument here. Yeah, you're talking to one of them. But I'm glad that you, you, you and I are on the exact same page about, you know, the idea that ownership and control means a production. And it is a very different thing from, you know, redistribution like social democracy kind of the stuff like Sweden does like if you look at the Scandinavian countries, those countries are less regulated than we are.

Exactly right. The more capitalistic than we are on the production side and then on the redistribution side, they do a lot more.

And so is that more or less socialist than us like that it is a totally semantic argument. And I wish people would just stop like saying what isn't socialism and they soon will because that that, you know, like that that's going away. If you come up with a new town, I thought what George Bush did was pretty, or W compassionate conservatism isn't there is there room for compassionate capitalism woke. Sorry, I'm not slogan hearing and I'm not necessarily good slogan hearing. I want a bumper sticker now.

I'm not good at bumper stickers except for maybe silly ones.

“But then, but I think that what I would just use the word redistribution to use a word to mean what it means instead of using tying it to the whole package of ideologies and stuff by calling it socialism.”

Call it redistribution, which is what it is call things what they are use use, you know, terminology to mean specific useful things. My final question, if you know, is there any economic trend that you're seeing today that makes you optimistic about America that makes you bullish on America or the world or humanity at large. I mean, like obviously, AI, you know, is the big reason for optimism, you know productivity growth, we're already starting to see some productivity growth that's probably from AI, we're not sure.

Without a parent job loss, you know, like all these people thought AI was a job destroyer and a human remover and so far it's turning out not to be that like, you know, there's a few occupations that are under stress and under pressure from from AI. But that's true of any technology that was true of machine tools, that was true of anything that improved our prosperity in the past that we're not worried about is true of databases and computers, it was true of the internet is true of everything. And AI so far, like our job markets, you know, there's less hiring and less firing, what how corporations hire and fire people is going to change.

“I think we'll go more toward a Japanese system where we have like salarymen doing generalist jobs for companies and like, you know, instead of highly specialized things.”

And a whole lot more independent entrepreneurs, we're seeing a lot more independent people start small businesses. There's a positive trend. We're just seeing a massive surge in dynamism, a surge in business formation, individuals can start businesses more easily than ever before. I have my, my sub-stack is a, is a tiny business, you know, it is an, is an escalperation. And so we're seeing a ton of that and we're seeing no big negative effects so far of AI on aggregate employment outcomes and yet we're seeing a parent productivity acceleration.

And that is great. That's a much better outcome than we could have than people would have hoped for even two years ago, even one year ago. Even now it's better than what people think is happening, you know, people think AI is out there destroying jobs and so far it's not. And so that, that's something we need to be more vocally acknowledging of, we need to say, like, look guys is not destroying jobs and yet productivity is accelerated.

We will need to have plenty more conversations in the future. But for now, I will have to wrap us up.

“Noah Smith writes the no opinion blog covering economics, technology, geopolitics and culture.”

Previously, Noah was an economics PhD student at the University of Michigan and assistant finance professor at Sony Burke University and economics columnist for Bloomberg opinion.

You left Bloomberg in late 2021 to blog full time for more of his work had to know opinion.

“That's Noah his name, opinion dot blog to subscribe to his newsletter. Noah, thank you so much for joining us today and thank you to our live audience for tuning in. We will see you all next time.”

Yeah, it was great to come on and please have me back any time. Congratulations on your success, Noah. This episode was produced by Claire Miller and Alson Weiss and engineered by Benjamin Spencer.

“Our video editor is Jorge Corti, our research team is Daesh Alan, Chris Nudonahue and Mia Suvario.”

Jake McPherson is our social producer. Drew Burroughs is our technical director and Catherine Dylan is our executive producer. Thank you for listening to "Proftly Markets" from "Proftly Media". If you like what you heard, give us a follow and join us for a fresh take on markets on Monday. You have me in time for you, yeah, as the long term. [Music] Running a business shouldn't feel like surviving a software group project, one after accounting another for inventory another for sales and somehow, none of them talk to each other.

That's where Oru comes in, and all in one business management software that brings every part of your business together.

From sales and accounting to inventory and marketing, all in one powerful platform, no messy integrations, no bouncing between tabs and best of all, no spreadsheets.

Stop managing software and start managing your business with one unified system. Try for free today at odu.com/box. That's oduo.com/box.