Thread by @balajis

Both @jack and @CathieDWood are right in different ways.

Everything technology disrupts will see prices fall. Everything the state subsidizes will see prices rise. Like the graph below, but even more extreme.

The problem is that the state controls much of the physical world: housing, education, and healthcare, but also ports, utilities, and police.

So the next costs after soaring rent and medical expenses will be supply chain shocks, power outages, and spending on crime mitigation.

The state actively prevents automation in the sectors it controls. Baumol’s cost disease doesn’t happen by accident.

Arguments vary — sometimes it’s safety, sometimes explicitly about protecting jobs — but there’s a reason you don’t have free AI medical imaging on your phone.

At the same time we are seeing the rapid advance of technology in the digital realm. AI will go everywhere.

Anything you can deliver on a screen or through a device will get very cheap (though the continued supply of devices is a function of the China/US relationship).

In the bad scenario that means we may be on track, in the US at least, for a Ready Player One world.

Everything physical is extremely expensive or unavailable.

Everyone lives as much life as possible through a screen or headset as the digital world is affordable & functional.

We saw a possible preview of this during the early days of COVID, when at first everyone was locked down looking at their phones, and then they were outside fighting each other.

Combine those two and you have a recipe where people stay indoors and online to avoid the anarchy.

Again, this is bad outcome. Not guaranteed.

Tech in this scenario isn’t the cause of the problem, it’s the workaround for a failed state.

Just like other cities benefited from tech & didn’t end up like SF, other countries will do fine without ending up like the US may end up.

So the US is currently on track for a world where everything physical that can possibly be replaced by a cheap digital alternative is. Flights → Zoom, some workers → AI, much socialization → social networks.

And everything physical that can’t be so digitized gets expensive.

What is another possible scenario?

Fundamentally, the federal government has declining state capacity. It is losing control of events at home and abroad. If it can no longer control a US state’s internal decisions, that state could take a new path on (say) healthcare or energy.

There is a third & not wholly orthogonal scenario, where tech manages to bridge more innovation to the physical world via (eg) robotics.

But so long as the failed state runs the physical world, any resulting cost efficiencies will be eroded, or robots won’t even be allowed.