Beware of False Prophets
Earlier this week, Axios interviewed Anthropic CEO Dario Amodei and they advertised the comments from Amodei with the stunning headline, “AI could wipe out half of all entry-level white-collar jobs.”
Other outlets picked up the story and used even more breathless headlines. The NY Post blared, “AI could spark a bloodbath for white collar jobs sending unemployment to 20%”
Amodei is quoted as saying, "Cancer is cured, the economy grows at 10% a year, the budget is balanced — and 20% of people don't have jobs."
Maybe it’s because I’m getting too old to abide the tech fabulism that has become so popular. Maybe it’s because I spent the better part of a decade at Morgan Stanley observing their revered economists and strategists making predictions that failed to manifest. Maybe it is having run a P&L at a brutally competitive long/short hedge fund where the best performers were not those who made grandiose prognostications, but those who assiduously managed risk and seized on trends when they emerged. In general, we try to avoid predictions. Our goal is simple: to help financial advisors better understand macro and all of its inherent randomness and thereby help them better serve their clients. Our mantra is “Frame the Debate”, which means we present advisors with the range of credible views both bullish and bearish. Which is not to say we don’t have views, we certainly do. But we express those views with humility and within the context of a spectrum of potentialities.
The problem that I have with the Amodei comment about 10% GDP growth and 20% unemployment is that it is neither humble nor credible. It is preposterous. I decided to read the CEO’s other commentary to figure out how he might have come up with his forecast and found an essay he wrote in October of last year titled, “Machines of Loving Grace” where he wrote the following,
“Can the developing world quickly catch up to the developed world, not just in health, but across the board economically? There is some precedent for this: in the final decades of the 20th century, several East Asian economies achieved sustained ~10% annual real GDP growth rates, allowing them to catch up with the developed world. Human economic planners made the decisions that led to this success, not by directly controlling entire economies but by pulling a few key levers (such as an industrial policy of export-led growth, and resisting the temptation to rely on natural resource wealth); it’s plausible that “AI finance ministers and central bankers” could replicate or exceed this 10% accomplishment.”
Growth of any country is determined by the growth of the workforce and productivity growth. I have no doubt AI will have a beneficial impact on productivity growth but one has to understand that productivity has averaged around 2% since the end of WW2 and tends to peak briefly at around 4%. In terms of workforce growth, the US is currently running right around 0%, and maybe less as immigration has been effectively halted and deportations grow. The East Asian countries referenced enjoyed workforce growth that drove more than half of their GDP growth. That means the US would require productivity growth to be sustained at 2x peak levels. For that to happen, economic demand has to be so strong that capacity utilization is extremely tight. How exactly is there going to be such robust demand amid depression-like unemployment rates? The whole thing is silly and economically incoherent. As for the AI curing cancer part, I hope he is right, but the fact that the biotech sector has been painfully weak amid the emergence of AI would suggest that the professional healthcare investors see the outcome as a bit more difficult to assess.
Big, bold predictions are hard to get right, but free to make. Beyond that, we now live in a world where there seems to be no recourse for big, bold and dead wrong predictions. Elon Musk has certainly taught us that. “Beware of false prophets, which come to you in sheep’s clothing, but inwardly they are ravenous wolves”
Tim Pierotti is WealthVest’s Chief Investment Officer.
Tim has over 25 years of experience in various aspects of the equities business. Prior to joining WealthVest, Mr. Pierotti spent seven years in Equity Research management roles at Deutsche Bank and most recently at BMO where he was a Managing Director and Head of US Product Management. Tim has 11 years of investment experience most notably as Head of Consumer Research and Portfolio Manager at The Galleon Group, a former NY based $8Bln Long/Short hedge fund. Tim is a graduate of Boston College and lives in Summit NJ.
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