Marcos

Macro & geopolitical risk | Ex-Goldman Sachs, Morgan Stanley, Nomura

Launching something soon

[Marcos @simplymarcos]

Will historians speak of the Druckenmiller moment as the beginning of AI acceptance in society?

[Jeff Stein @jstein_notus]

New - Billionaire Stanley Druckenmiller tells me "of course" he used AI to write op-ed on Bessent & bond market

"There's a reason I moved from an English major to being an economics major," he says, "I'm not embarrassed by it"

No response from WSJ

https://t.co/9j0tkH2qFe

[Marcos @simplymarcos]

@alz_zyd_ Everything is clearer when you realize capital is almost always measured as investment effort

[Marcos @simplymarcos]

@paulg The thing about this prediction is that it's already true today

[Marcos @simplymarcos]

@dwarkesh_sp The global interest rate is human price of YOLO

[Marcos @simplymarcos]

The global interest rate is human price of YOLO

[Dwarkesh Patel @dwarkesh_sp]

Could AI investment start a global sovereign debt crisis?

If you look at the SpaceX-Google deal, it is already the case that the entire capex for the data center can be paid off by leasing it out for roughly 1 year.

As we get closer to AGI, the returns on compute will be massive and obvious, many-fold the principal within a few years. And as AIs get more capable, the demand for the compute to serve them will be as large as the demand for white collar labor - aka 10s of trillions of dollars a year.

In this world, why would anyone invest in anything but datacenters/ semiconductors/ energy/ robotics, which will have astronomical returns?

There may be many upsides to this world, but one of the downsides would be many sovereign debt crises around the world

In 1980, Fed Chair Paul Volcker raised interest rates about 10 pp in order to fight inflation - and this drove some 40 odd countries, mostly in Latin America, to default. A similar thing might happen again - what @BasilHalperin calls the second Volcker shock.

To put it in very plain terms, investors would say, "Hey, why am I going to lend Egypt money at 5% when I could just buy relatively safer investment-grade hyperscaler debt in America at 10%?" It’s even worse, because the investor also correctly notices that rising rates make Egypt more likely to default, so they demand even higher rates to account for the risk. This makes it even harder for Egypt to continue servicing their debt, which accelerates the default.

Most equities would get pummeled too. Anything valued for stable cash flows craters in price as the discount rate increases, resulting in a barbell of market equity returns. The market overall may be up because of AI stocks, but almost every other stock will be down.

The U.S. fiscal situation may also be troubling because short-duration U.S. debt would get refurbished to the new interest rate just as the main source of federal revenue (labor) is decreasing in relative share.

At the end of the day, I think the U.S. government will be mostly fine, because the data centers are on American soil, and Congress can always invent new taxes to capture some of the token revenue, or, less efficiently, the investment itself.

All this being said, if the economy is growing tens of percent a year, this would also be a world of great abundance!

I think this is a bunch of nerd speak for the very basic fact that in a world with explosive growth as a result of AI, there's just a lot of opportunities to invest and grow money. The higher interest rate reflects the fact that the opportunity cost for government spending just shoots up extremely high. You're paying a ton of opportunity cost to give people pensions now rather than building a new datacenter.

And yet, net-net, most people might still be significantly better off.

[Marcos @simplymarcos]

Simple income model result sounds about right. But depends on a lot:
- share of income sent abroad via remittances
- marginal propensity to save
- positive/negative political economy externalities
- economic slack at time of immigration
- if human capital is a binding constraint to growth
- skills/knowledge transfer, etc.

[Marcos @simplymarcos]

To beat AI make your next token unpredictable

[Marcos @simplymarcos]

@EmmaJoNYC Cheers to that

[Marcos @simplymarcos]

It’s not a data center, it’s a token plant

[Alexis Ohanian 🗽 @alexisohanian]

hey guys we gotta figure out a new narrative on this data center thing....

[Marcos @simplymarcos]

@alexisohanian It’s not a data center, it’s a token plant

[Marcos @simplymarcos]

@shiraeis Would love to look at your memo and consider an angel check

[Marcos @simplymarcos]

@AsiaLens @PekingMike https://t.co/bV4eVzr12h

[Marcos @simplymarcos]

I have a dream that one day writing will be judged by the quality of its content rather than by the color of its AI watermark

[Marcos @simplymarcos]

I have a dream that one day writing will be judged by the quality of its content rather than by the color of its AI watermark

[Jesús Fernández-Villaverde @JesusFerna7026]

Today I read the new Stanford Encyclopedia entry on Capitalism by @chiaracordelli.

It is, simply put, a bad piece of scholarship.

I will illustrate it with just one passage using one of my most popular posts ever:

“A guide for students of economics: Ten statements that demonstrate that someone does not understand modern economics or what an equilibrium is, and that you can safely ignore everything else they say.”

https://t.co/eDSUoQXtlX

I quote from the entry when it talks about Hayek and Friedman.

“From all these exchanges, an “equilibrium,” perhaps a “general equilibrium,” spontaneously arises in a capitalist economy.”

Compare with my explanation (which builds on the tradition of Hayek and Friedman):

“Equilibrium is not meant to describe the daily state of the world. It is a conceptual device used to understand the outcome of our models under the assumptions we make.”

The entry continues:

“This in turn means that the factors of production that are capital and labor are employed in their most efficient proportions. Also, produced goods and services flow through markets to where, at the margin, they are most valued, making these markets efficient, too.”

Compare with my explanation:

“Equilibrium is often conflated with efficiency, but equilibrium merely reflects decentralized consistency, not welfare maximization. Market power, externalities, incomplete markets, nominal rigidities, and frictions routinely produce inefficient equilibria. I often teach a first-year macro graduate course, and not a single one of the equilibria I define is efficient.”

The article continues:

“Inherently, it has no real crisis tendencies that it cannot self-correct. Capitalism goes wrong when it is politically interfered with”

Compare with my explanation:

“Equilibrium is sometimes misinterpreted as a static state in which nothing evolves. In fact, many equilibria are sequences of probability distributions over states driven by shocks, policy rules, and endogenous responses. Learning dynamics (Bayesian updating, adaptive rules, experience-based expectations) can occur within equilibrium if the evolution of beliefs is self-consistent.”

And finally:

“Capitalism goes wrong when it is politically interfered with”

Compare with my explanation:

“Some interpret equilibrium as a laissez-faire concept. In fact, equilibrium analysis is the foundation of modern policy evaluation. Fiscal, monetary, and regulatory interventions work through equilibrium responses (prices, wages, interest rates, quantities) and must satisfy equilibrium conditions to be credible. Equilibrium is a tool for policy design, not a barrier to it.”

None of this is deep. I knew it as an undergraduate student in college. Hayek and Friedman were subtle economists who, yes, defended market economies but who understood economics much better than the author of the entry.

I recently argued that institutions waste their credibility by engaging in political activism instead of scholarship. How can I trust now the Stanford Encyclopedia of Philosophy’s entry on Hegel, for example, if the entry on Capitalism would fail my undergraduate course at Penn?

[Marcos @simplymarcos]

@shiraeis would read it

[Marcos @simplymarcos]

@cremieuxrecueil As an economist, I can confirm our job is way less important than early childhood education

[Marcos @simplymarcos]

@alexisohanian Put me down for Hong Kong

[Marcos @simplymarcos]

@adamscochran Agree but for loss leaders to work the people buying need to be able to afford more.

The more intelligent debate about redistributive policies is one focused on targeting.

Republicans want to target no one.

Democrats want to target everyone.

[Marcos @simplymarcos]

@paulg @arcticinstincts The most common skill in asset management is fundraising

[Marcos @simplymarcos]

My bet is that we will realize soon that there is value in the reasoning, not just the answer.

[Ethan Mollick @emollick]

A fundamental problem with extending Codex/Cowork/Code to all knowledge work is that they remain very "software-brained" where the end result (the software) is what is important & that code serves as a source of truth.

For a lot of other knowledge work, the process is at least as important as the outcome. This includes researching what is known, an exploration of alternatives, failed efforts, prototype branches, experiments, etc. All of those things are valuable, so you cannot use the PowerPoint at the end the way you can use a codebase, nor is progress on a to-do list sufficient context post compaction. You work in learning loops, refining your perspectives as you go.

In some ways, this makes long-running models like Fable hard to use for deep knowledge work, since they are designed to deliver product to you in the end. You can prompt your way around this problem, but everything about the Codex and Code harnesses want you to be a software developer and you have to fight them. There is a real disconnect between how a manager or analyst thinks about problems and how the agentic software tools approach solving them. Addressing this is critical to breaking out of the coding niche for these tools.