Live from Palo Alto! "The Economics of Transformative AI" @nberpubs workshop. I will be trying to live tweet (mega jet lagged--flew from HKG--, so I really hope I can keep it up) the papers presented. Watch this thread
Here is the fantastic line up
nber.org/conferences/ec… Intro talk from Agrawal, Korinec and Brynjolfsson. The assignment: lets not discuss if transformative AI will or not happen. Instead, lets assume it is going going to happen and draw the consequences for makets and the economy.

There is widespread sense AI adoption is slowing down and productivity gains are hard to get. Is it true? Why? I just attended the inaugural conference of the Center for AI, Management and Organizations at Hong Kong University. A thread on insights.
1/17 A general answer before going deep in: firm adoption of GenAI is widespread, but it is shallow, and barely profitable. An often repeated point was that only a small minority of firms are seeing P&L impact. Data from a Deloitte&CAMO survey of 109 top executives: 2/17

1/10 Good news on AI could be bad news for Europe's debt.
A boom in AI-driven productivity could end decades of slow growth. But for Europe, this silver lining may hide a fiscal storm cloud. Here’s why. 2/10
The key is the global real interest rate, r*. Think of it as the price that clears the world's market for assets. For 70+ years, high demand for assets from savers and slowing productivity has kept r* low. This is about to reverse.
siliconcontinent.com/p/r-without-g

Let's not kid ourselves: Europe can't compete on compute.
- Energy costs 2-3x more than in US.
- Permitting makes building anything a nightmare.
- We lack tech ecosystem.
Catching up in model-building is delusional.

An alternative: Europe can be a smart second mover.

🧵1/10 Nobody knows who will capture the value created by AI: could be chips (NVIDIA), manufacturing (TSMC/ASML), models (OpenAI), or implementation layer.

Our proposal is to tilt the playing field towards this last layer.
2/10
siliconcontinent.substack.com/p/the-smart-se…

1/@EpochAIResearch doubles down on preiction AI will drive 20%+ annual GDP growth. Economists remain skeptical.
This is the defining debate of today: AI builders see infinite prosperity ahead. Economists see the same limits that constrained every technological revolution.🧵 1/13 2/The economists' core insight, which Epoch misses, is that progress works itself out of a job.
The more successful a technology becomes, the less it matters economically. Revolutionary technologies shrink their own importance precisely through their success. Larry Summers:

1/10 🧵 @masuch_klaus have written a post arguing the late 2010s QE was a big mistake. The debate sounds technical--central banks sold is as technical fine-tuning. But it's massive fiscal policy by unelected officials, creating perverse incentives and wealth transfers. 2/10 Fiscal consequences: QE transforms government debt structure. When central banks buy long-term bonds and pay with overnight reserves, they swap fixed-rate debt for floating-rate debt. The state suddenly owes money at today's rates, not yesterday's.siliconcontinent.com/p/the-hidden-c…

Germany's powerful Sparkassen (359 local savings banks with €2.5 trillion in assets) are a key obstacle to completing the banking union (together with the Italian government). Why?
THREAD on my Silicon Continent post 1/11 Without a banking union, the sovereign-bank doom loop threatens to return to the EU.
This is where a crisis in a country's government and its banks can dangerously feed each other, a risk now higher with rising interest rates.
Link to post:

2/12siliconcontinent.com/p/the-return-o…

THREAD: It is clear that something has gone horribly wrong in European energy policy. How did this happen? Why did the entire political center go along with this?
My views on the anatomy of an error from our post today. 1/11🧵 Like many, I assumed grid operators, utilities, and industry would intervene if truly catastrophic policies were being implemented. We trusted that leaders like Angela Merkel and Mark Rutte would get sound advice and make sensible decisions. 2/
siliconcontinent.com/p/anatomy-of-a…

This Draghi piece is a quiet indictment on the @EUCommission's failrue on its core Treaty mandate: "establishing the internal market" & ensuring "free movement of goods, persons, services and capital."
A thread with the facts adn saying the quiet part out loud
1/ PRICES:
IMF shows EU internal barriers =
- 45% tariff on manufacturing,
- 110% on services.

As services become more important in the economy, barriers on service trade create an even bigger drag on growth.

2/
ft.com/content/13a830…

The Italian SuperBonus: How a badly designed fiscal "stimulus" ballooned to 6 times its budget to cost 12% of Italy's GDP, and what it tells us about the fiscal governance of Europe.

A thread on my Silicon Continent post.
(1/11) In 2020, Italy launched a program to subsidize 110% of home renovation costs. The objective was to improve energy efficiency and stimulate an economy.

Initially budgeted at €35B, it will end up costing €220B.
(2/11)
siliconcontinent.com/p/how-to-incin…

The Netherlands is Europe’s best-governed country. Unfortunately, it is paralyzed. Construction is freezing up, and Europe’s most valuable tech company (ASML) is threatening to leave. What happened should be a warning for every other EU member state. THREAD (1/11) 2/ The EU's Habitats Directive required protected nature areas with strict nitrogen thresholds. The Netherlands spread these areas out.

Emissions limits are now breached across the country. Link to today’s post by @pietergaricano:
siliconcontinent.com/p/target-price…

🧵While Brussels dreams up new billion-euro funds, businesses suffocate under red tape. Draghi's report maps our regulatory labyrinth, yet prescribes more debt as the cure. France now pays higher rates than Greece. Here's the story.
(From my Silicon Continent post today)
1/10 Over the last decade, we've witnessed an unprecedented debt explosion. Just energy crisis measures cost €651bn in 16 months.

Yet EU growth remains anemic. Our supposedly "neoliberal" era has paradoxically increased business regulations and constraints.
siliconcontinent.com/p/focus-on-the…

1/10 Europe just got a brutal wake-up call about green energy math. When wind & sun disappeared in December, electricity prices shot up 20X. Our current plans for batteries and storage won't solve this for decades. Here's the real numbers 🧵 2/10 Case in point: December 2023's "dunkelflaute" in Europe. No wind, no sun. Result? Electricity prices spiked 20x in Norway, hit record highs in Netherlands, and led Spain's authorities to cut power to factories 🌑
Link to the post by @pietergaricano

siliconcontinent.com/p/intermittenc…

The ECB is handicapping its digital euro project (strict holding limits, no interest payments, and mandatory bank account links) in order to protect the current broken, inefficient, subsidized banking system.

Do we need banks?

My post today in Silicon Continent
🧵 The ECB wants to give Europeans direct central bank accounts for payments. Their goal? Compete with Bitcoin and lower transaction costs by cutting out Visa/Mastercard fees. Sounds great... until you see the restrictions.
2/10
siliconcontinent.com/p/do-we-need-b…

Europe had an effective tool for climate action: the Emissions Trading System (ETS). Instead of expanding this market-based solution, we've built a byzantine regulatory framework that goes far beyond emissions reduction.
THREAD on my post today on the "Compliance Doom Loop"
1/10 Costs are staggering: Corporate Sustainability Reporting Directive (CSRD) requires 42,000 companies report 1,052 data points (783 mandatory). Cost: €150K-1M per company annually.
CSRD compliance costs of 12.5% of investment of mid sized firms (EIB).

2/ siliconcontinent.com/p/the-complian…

Wake-up Europe! Enough of the de-growth agenda!
There is no strategic autonomy while we spend our every waking hour erecting barriers to growth!
THREAD on the post today in Silicon Continent by @pietergaricano.
1/8 Today's Trump victory makes Europe's strategic autonomy urgent. But Europe has lived beyond its means through "luxury rules" - virtuous but growth-hurting policies that were only possible due to US protection and innovation.
2/
siliconcontinent.com/p/the-end-of-l…

The EU AI Act seems designed to allow AI only for routine tasks while hindering its use in high-level problem-solving.

This will endanger European AI startups and significantly damage EU productivity.

THREAD on our post today in Silicon Continent.
1/9 An AI bank teller in the EU would need two humans to oversee it. A startup building an AI tutor faces countless hurdles before launching. The is the reality under the EU AI Act—a well-meaning but flawed attempt to regulate AI.
2/
siliconcontinent.com/p/the-strange-…

We keep hearing how solving Europe’s innovation stagnation requires more public spending. But the numbers show otherwise: the EU falls behind in private R&D investment, not public.
A thread based on this week’s blog.
1/10
siliconcontinent.com/p/the-problem-… As a share of GDP, Europe spends 0.74% on public sector R&D, compared to the U.S. 0.69%.

The actual R&D gap is in private sector spending, where Europe spends 1.3% of GDP compared to the United States' 2.4%!
That gap is worth 341 billion in R&D spending in 2021. /2

New data shows that the EU Commission has blown the chance the NextGen gave it to get the EU on a growth path. Two key elements.
1. Pensions in Spain.
2. Reforms in italy.

The new data is from the ageing report of the EU Commission on the budgetary impact of the pension "reforms"- more below

( h/t @rdomenechv @fernandosols with official data from the Spanish government.)

Small THREAD (1/7)economy-finance.ec.europa.eu/publications/2… The EU NextGen plans gave an unprecedented and powerful stick to the EU Commission to demand reforms and investments in exchange of money. Never has the Commission had the chance to get states to get some reforms going.

In Spain, the EU Commission has been complicit (in spite of numerous warnings) in setting Spain on an unsustainable Fiscal path
(2/7)

Some reactions to the (wonderful) Levitt interview.
1) On the @uchicago PhD program and the atmosphere in the department in the 90s (toxic?).
2) On Price Theory and its future at @uchicago and beyond.
3) On the "technification" of economics and the blurring of the "theory-empirics" boundaries.
(link to interview: )
(Thread)
1/npodcasts.apple.com/us/podcast/ste… 1) On the Econ PhD Program. I went in 1992, graduated in 1998. I did not feel the ambiance was toxic. It was tough work, almost brutal, not toxic. I was given a chance I would not have gotten elsewhere. There was nothing personal about the standards. We were getting trained by the best and that was intellectually invaluable -we got the chance of a lifetime. Here are some profs of my first two years (note 5 nobels):
Macro: Sargent, Lucas, Cochrane, Woodford, Stokey, Townsend.
Micro: Becker, Rosen, Murphy, Scheinkman
Metrics: Hansen, Heckman, Zellner.
It was extremely hard, by far the hardest thing I have ever done. But it should be hard. They were trying to put a bunch of kids at the frontier of knowledge.
It was not for everyone, but we knew what we were getting into. My admired supervisor, Sherwin Rosen, then department chair, gave us a "superstar" (he wrote THE paper after all) talk on the first day. He told us half of us would fail in the first year Core (and exit with an MA, is that so bad?), half of the rest would not make the prelims. Of the 50 we were there, maybe 10 would finish the PhD, most of those would never get any citation.
And yet we persisted. We wanted to learn, and were grateful for the hance.
2/n

Prometí hacer un pequeño hilo con datos sobre el estancamiento de la economía española, al hilo de mi entrevista en @elmundoes.
Aquí van 4 gráficos. Al final del hilo, el texto de la entrevista completo.

https://twitter.com/lugaricano/status/1708464341991686584

La economía crece por demografía o por productividad.
Demografía: somos 47 millones.

La ONU estima que a finales de siglo seremos 30.8 millones, con una orquilla entre 21m y 43m: en el mejor caso (con mucha inmigración) estancamiento de la población.

data.un.org/Data.aspx?q=Sp…