Are We Building AI for Progress or Power? — ft. Daron Acemoglu

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Speaker 5 Today is number 43. That's the percentage decrease in peanut allergies over the last decade, Ed.
True story, I'm pretty sure I had a nut allergy when I was a kid.

Speaker 5 My parents thought I was trying to avoid church.

Speaker 6 Listen to me. Markets are bigger than us.
What you have here is a structural change in the wealth distribution.

Speaker 7 Cash is prayer.

Speaker 8 Stocks look pretty attractive. Something's going to break.
Forget about it.

Speaker 5 Oh, my God.

Speaker 10 That's pretty bad, right?

Speaker 11 I can see it coming a mile away

Speaker 11 in all transparency. Brings up an interesting question, Scott.
Do you have any allergies?

Speaker 10 No.

Speaker 5 I literally am.

Speaker 10 As a matter of fact, I can't.

Speaker 5 I'm so sick of

Speaker 5 waiters are, I think, legally mandated in the UK. I don't know if they are in the U.S.
to ask you, does anyone have any allergies? Is that right? Yeah, they have to ask you, do you have any allergies?

Speaker 5 I'm like, bad service?

Speaker 5 I've had it with the service in London. You are so spoiled in New York.
The service is so good.

Speaker 10 It's true.

Speaker 11 What are some of your horror stories? Nothing horror.

Speaker 5 I mean, you know, I don't, it takes them more than three minutes to get me my second makers and ginger. Those are my horror stories.

Speaker 5 My, my worst days are better than most people's best days, but it's not.

Speaker 5 I go to this place called, since children burned down, I got to go to this place called Kensington Roof Gardens, which has way too many fucking dudes and it's way too crowded.

Speaker 11 Beautiful place, though. I was there over the summer.

Speaker 10 It's unbelievable.

Speaker 5 Yeah, it's great for the 11 days a year. You can actually go into the roof garden, but otherwise we're all crammed inside wishing that Chiltern was still open.

Speaker 5 And there's, I'm not exaggerating, there's 700 people lining up at the bar, 695 of them men.

Speaker 5 And you'd think, and there's like two bartenders sitting there like slicing limes very methodically and elegantly.

Speaker 5 And I'm like, Jesus Christ, dude, just start like literally spraying beers at us and we'll open our mouths. That's the thing about, that's freaked me out about the members' club.

Speaker 5 You're a member of Shea Margot, because now that we're paying attention.

Speaker 10 I'm not a member of that. You're not? I keep seeing you there.

Speaker 11 Yeah, I get invited by members.

Speaker 5 Well, anyways, the thing about it is that freaked me out. I'm like, it's so young here.
And then I realized it's not, the reason I think it's so young is, you know what it has?

Speaker 5 Most of these clubs have guys in their 40s and women in their 20s and 30s. And what Shay Margot has is it has a bunch of dudes in their 20s, which makes it feel like high school.

Speaker 11 I got to agree with you.

Speaker 11 Surely you're not very happy about that.

Speaker 5 I'm fine with that. I like it.
They all come up to me. I love your content on men.
Hey, what's Ed like? And I literally, were you student body president or the mascot or something?

Speaker 5 Everybody knows you.

Speaker 5 And it totally bums me out because I like to get a little fucked up and talk to everyone at the bar, throw an unlit cigarette in my my mouth put on sunglasses and just be a cliche of me and then when people come up and say they know you i feel as if i have to act semi-respectable i'm like oh hey hi yeah oh yeah no i don't know what to do what do you think is going to be the next interest rate cut

Speaker 10 good

Speaker 11 good they're also funny this is the trouble you shouldn't have been a professor you clearly you should have been like uh an actor or like a pop star or something that's what you really want 100 i'm just not that talented but i agree with you no i think you are you're just, you're talented in the thing.

Speaker 11 You've got a good brain. You've got a good economic brain.
And really, what you want to be doing is like, you've got the Bezos thing. You want to be,

Speaker 11 you want to be like Justin Bieber or something.

Speaker 5 You had me till the Justin Bieber part.

Speaker 5 I would have gone for Ryan Reynolds or George.

Speaker 5 George Clooney.

Speaker 10 He seems smart and very politically oriented.

Speaker 5 But

Speaker 5 the thing I hate about your friends,

Speaker 5 that's a good way to start a sentence, is they're so

Speaker 5 annoyingly earnest.

Speaker 5 Professor Galloway, it's so nice to meet you. I know Ed.
He's such a good person, isn't he?

Speaker 10 Fuck off.

Speaker 5 Anyways, they're so...

Speaker 5 Anyway, but it's great to meet your friends out.

Speaker 11 I've got to learn about who these friends are.

Speaker 5 I haven't been there. You're Princeton buddies.

Speaker 5 What is it, like a reading club or a drinking club? Like you guys, you guys have... Pims cups or something and play cricket.

Speaker 10 Eating, yeah. Is that what it is? Eating club.

Speaker 5 That's right. So on set of fraternities, they have eating eating clubs.

Speaker 10 They actually have both. Oh, really?

Speaker 11 But yeah, that is what it's called. It's called an eating club.

Speaker 5 But you were in an eating club, and you would get into anyone because of that faux British accent, which, by the way, everyone is figuring out is total bullshit.

Speaker 10 They're on to me.

Speaker 5 You're from Nashville.

Speaker 5 All right, and enough of this. Get to the headlines.

Speaker 11 One of our douchiests. Okay, here is our conversation with Daron Asimoglu, Nobel Prize-winning economist, New York Times best-selling author and professor.

Speaker 5 This is not an easy segue. This is not an easy segue.

Speaker 10 Oh, God.

Speaker 11 Nobel Prize winning economist, New York Times best-selling author and professor of economics at MIT. Professor Asimoglu, very good to have you on the show.

Speaker 10 Thanks, Ed. A great week with you and Scott.

Speaker 11 So we want to start with AI for obvious reasons.

Speaker 10 That's all we can really talk about at the moment.

Speaker 11 We've been seeing a lot of bullish sentiment in AI. We've also been seeing a lot of circular investments happening, a lot of people saying that it's a bubble.

Speaker 11 Last year, you were asked to answer on a scale of one to 10, how much of an impact AI is going to have on the world. And your answer at the time was negative six.

Speaker 10 So

Speaker 11 we want to unpack this,

Speaker 11 starting with that hot take.

Speaker 11 What are your views on AI at this point? And do you still have a negative six rating on AI right now?

Speaker 10 Let's break that into

Speaker 10 three pieces.

Speaker 10 One is,

Speaker 10 is AI a transformative technology with great capabilities? Yes. That's why it's not minus one or plus one.
It's minus six.

Speaker 10 Second,

Speaker 10 how quickly will this technology reach fruition? And there, I think the answer is it depends on how quickly it's pushed.

Speaker 10 So I think for a positive development path, I think we need a more deliberative approach.

Speaker 10 We are rushing into AI in a way that I think makes applications using AI less likely to develop because we are just doing it too quickly.

Speaker 10 And we also don't have a roadmap of what it is that we really want from AI while we are, everybody recognizes that this is a technology that's going to have tremendous number of side effects, foreseen and unforeseen consequences.

Speaker 10 So all of these things, plus,

Speaker 10 very importantly for me, the focus on automation and AGI, while there are better things to do with AI, I think

Speaker 10 tip the scales towards negative. So it's minus six, minus five, minus seven, take your pick.

Speaker 10 But I'm very worried about the direction of AI, where it's much more concentrated, who uses, who controls information and what we do with it.

Speaker 11 Yeah, could you break down what that negative impact would actually look like?

Speaker 11 There's the aspect of the concentration of power, and I'm sure that could have many implications. We're also worried about it.

Speaker 11 There is the implication of automation and the idea that this would replace labor, it would replace people's jobs. Say more about how it goes from negative one to negative six in your view.

Speaker 11 What is that destructive impact that you're so worried about?

Speaker 10 In the production domain, if we use AI

Speaker 10 mostly for automation.

Speaker 10 I think not only would we be missing some of the really transformative uses of it,

Speaker 10 but we would create much smaller productivity gains than expected, and we would also create various social outcomes that are negative related to

Speaker 10 job loss for certain groups,

Speaker 10 lack of employment opportunities for certain groups, wage stagnation or declines like we've experienced in the 1990s.

Speaker 10 All of these are on the negative part related to the production process. But I'm also very worried about

Speaker 10 the fact that AI is first and foremost a communication technology.

Speaker 10 And as a communication technology, it changes political and social dynamics.

Speaker 10 And when it centralizes information in the hands of a few companies,

Speaker 10 it can have a variety of very negative effects on democracy, on dissent, on

Speaker 10 diversity, variation in opinion, all sorts of things that we are really not prepared for.

Speaker 11 What would you say to someone who would say that you are being a Luddite? Or, I mean, we've seen transformative technologies in the past, whether it be oil or the electric grid or the internet.

Speaker 11 And it seems as though when these transformative technologies come along, there is a lot of concern about what it will do to our economy and how it will negatively impact our economy.

Speaker 11 But many people would say, well, eventually it works out and we shouldn't be so worried about technology. What do you say to those people?

Speaker 10 Well, there are really two theories that people

Speaker 10 could have about long-run effects of technologies in general.

Speaker 10 A first one is that

Speaker 10 in the long run, things will work out by themselves. Let it rip.

Speaker 10 And

Speaker 10 just the dynamics of things, for example, in the labor market or via democratic processes, sometimes semi-democratic processes, is that we'll just find the right way of dealing with things.

Speaker 10 The second one is that, no, it's a deliberative set of choices that we have to make in order to

Speaker 10 make sure that the long-run effects are better than the short-run ones. And I think if you look at several transformative technologies, indeed they did have fairly negative short-run effects.

Speaker 10 The beginning of the British Industrial Revolution is associated, depending on how you measure it, 70, 80, 90 years of real wage declines or stagnation. and

Speaker 10 huge increases in inequality. The transition out of agriculture similarly at first created quite a lot of social and economic hardship.
But in both cases, later adaptation worked out much better.

Speaker 10 But I would say, even though decisions were made without a roadmap, there were specific decisions about how to use technology, how to change the organization of production, and also political decisions that were quite important.

Speaker 10 And so it's not an automatic process. So I definitely, I'm not an AI pessimist.
And so I don't know what your definition of Luddite is, but I'm not an AI pessimist.

Speaker 10 But I do not believe that we're going to get the best out of AI or even the second best out of AI if we just say, oh, let's not worry about all the disruptions. Somehow things are going to work out.

Speaker 5 So it feels as if a lot of the concern or discussion around AI has moved towards who can secure

Speaker 5 reliable, large amounts of electrons or energy.

Speaker 5 One, is this an attempt, it sounds like, do you think this is an an attempt to paint a future where the demand is going to be unlimited and a bit of a head fake?

Speaker 5 Or do you see the same sort of power constraints that these guys are seeing? And what do you see as kind of the downstream impact of that?

Speaker 10 I do not believe that power, GPU capacity is the main

Speaker 10 limiting factor for the kind of AI that I have in mind.

Speaker 10 Because

Speaker 10 if we're going to make AI really serve our needs,

Speaker 10 I think it needs to have much more human-complementary domain-specific

Speaker 10 expertise. It has to be able to be an aid to electricians, to accountants, to journalists, to academics.

Speaker 10 And for that, high-quality domain-specific information data is going to be the real scarce resource.

Speaker 10 Whereas right now, the energy demand is mostly from foundation models that are very impressive in some ways, but also very, very expensive to run and have not reliably reached that context-specific domain-relevant expertise.

Speaker 10 So I think we have to find a way of getting the best out of foundation models, but combine them with domain-specific models.

Speaker 5 What I've also seen is that a lot of the different LLMs are hitting sort of a technical parody

Speaker 5 by most kind of, I don't know, hardcore metrics. Do you think there's a scenario?

Speaker 5 We had Robert Armstrong from the FT on several times, and he said that there's certain technologies where no one or small set of companies is able to ring fence

Speaker 5 stakeholder and therefore shareholder value. That the airlines, PCs, vaccines were huge innovations.
but you didn't have a small number of companies garnering trillions of dollars in market cap.

Speaker 5 Do you think this might qualify as one of those industries where even if it ends up being having a huge impact on society, that we're overestimating the ability of a small number of companies to capture a ton of shareholder value?

Speaker 10 I would be very worried about an industry that is so concentrated. On the other hand, it's a cutthroat industry,

Speaker 10 and

Speaker 10 we don't understand what sort of industrial organization of AI is going to emerge. So it is almost

Speaker 10 certain that

Speaker 10 whoever is doing the foundation models advances is not going to be the same one, same company that also does all of the applications. So you're going to form an AI stack.

Speaker 10 So once you form that AI stack, where are the risks going to reside and which part, which layer of the stack is going to get most of the returns? I think that remains to be seen.

Speaker 10 It's going to depend on where the real bottleneck is in terms of doing useful things and whether the foundation models are close substitutes for each other when it comes to serving as the first layer of that stack.

Speaker 10 I think those are really interesting questions. And it is made more interesting by the fact that

Speaker 10 industries that look very competitive at some point later on can be very non-competitive because early competition is about being the one that controls things later on.

Speaker 10 That's why it's so vicious because everybody thinks that they're going to get the prize and the prizes dominate the industry.

Speaker 10 So I don't know whether the competition that you're seeing right now is going to repeat itself in 10 years time or whether we're going to go to a winner takes all sort of structure at the foundation layer.

Speaker 11 Yeah, in your book, Power and Progress, you basically take us through history and the history of technological progress.

Speaker 11 And you make the point that technology has not necessarily been as beneficial as we think of it because of how it has been distributed throughout societies, which seems extremely prevalent to what we're likely about to see with AI.

Speaker 11 Take us through that history.

Speaker 11 What is your reasoning for that?

Speaker 10 How does that play out? Yeah, I think there are essentially several reasons why the full potential of a suite of technologies may not be realized or may not be realized quickly. One is monopoly.

Speaker 10 If one or a few companies dominate everything

Speaker 10 and they

Speaker 10 use that in order to extract all the rents, but also slow down innovation, that's one recipe for many good things not happening.

Speaker 10 So today, I think the digital world or communication world would be very different if ATT had remained

Speaker 10 like the sole monopoly. So the breakup there probably opened the field for more shake-up.

Speaker 10 The second is, you know, whether that technology is working with labor or is sort of just replacing labor and worse, like during many parts of human history, it's becoming a tool for repressing labor.

Speaker 10 Those don't work out great. I mean, slavery was not a very efficient system.
It wasn't just bad for the coarse people, but it wasn't actually generating economic dynamism.

Speaker 10 At the time of the Civil War, the U.S.

Speaker 10 South was falling further and further behind while the number of patents, innovations, industrial production, and all sorts of other things were advancing rapidly in other parts of the United States.

Speaker 10 So I think all of these things we have to sort of take into account.

Speaker 10 Is AI going to be a monitoring technology where workers become more and more powerless because there's so much data being collected about them. That's another concern that we don't often talk about.

Speaker 10 So there are many issues here that are intersecting and we see parallels for each one of them in history. None of those are perfect parallels.

Speaker 10 We've never been confronted with a technology that's so widespread in its potential applications. But we've had other technologies that are quite transformative as well.

Speaker 11 So how do we

Speaker 11 harness AI in a good way? I mean, what does regulation look like in your view such that

Speaker 11 it is a net benefit to society versus a negative six?

Speaker 10 First of all, I think we need to be

Speaker 10 thinking about what it is that we want from AI.

Speaker 10 Of course, not everybody is going to agree on that, but at least that conversation needs to be had in a more open, constructive way.

Speaker 10 And second, we also need to be clear about what we mean by regulation. I think what most people mean by regulation is a reactive kind of regulation.

Speaker 10 Something happens, AI companies do something, and then we are worried about certain additional harms, and then we regulate that. I think instead, what we want is something more proactive.

Speaker 10 Let's think about where it is that AI can do most

Speaker 10 good

Speaker 10 and ask ourselves whether it is going in that direction and what are the impediments for it not to go in that direction and see whether we can do certain things to facilitate that.

Speaker 10 So if we did not do those facilitators, we would not have the internet because the government support there was quite important. We would not have

Speaker 10 renewable technologies that are now, at least in certain applications,

Speaker 10 cost competitive with fossil fuels.

Speaker 10 So it's not like we have a

Speaker 10 sort of a law that says the market, or in particular, a few companies that are steering technology are necessarily going to choose the right paradigm.

Speaker 10 I think the market market is excellent in doing certain things,

Speaker 10 but

Speaker 10 market participants are also locked in a particular type of business model often.

Speaker 10 They are going after a particular kind of prize, and it is possible to step back and say, well, is there another prize that we should be focusing on?

Speaker 10 And that's what I'm arguing: that human complementary AI, where we try to augment human capabilities, expand human capabilities, could have real benefit and that's not the direction in which we're going.

Speaker 11 We'll be right back after the break and if you're enjoying the show so far be sure to give Profit G Markets a follow wherever you get your podcasts.

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Speaker 11 We're back with Prof G Markets.

Speaker 5 Do you think the U.S. is going to be able to maintain, I mean, other than DeepSeek,

Speaker 5 it's just very difficult to think of another AI player of almost any importance globally outside of the U.S.

Speaker 5 Do you think that the U.S. is going to be able to maintain that type of lead in the AI ecosystem?

Speaker 10 China has an engineering advantage.

Speaker 10 They have a huge huge number of engineers. They're generally well selected, meaning that more

Speaker 10 talented, quantitatively sort of skilled people enter into engineering because it's a very prestigious thing and they have exams that are relatively unbiased. And engineers are highly regarded.

Speaker 10 So when it comes to pure engineering things, I think China could have an advantage. On the other hand, the top-down system is hugely inefficient.

Speaker 10 There are so many places where inefficiencies build up. People are afraid of taking initiative.

Speaker 10 There is no decentralized sort of process. There, the US has an advantage.
How that will shake out at the end would really depend. DeepSeek is an engineering marvel.

Speaker 10 They didn't come up with any of the new methods. The new methods that DeepSeek were was using, some of them were invented by Google and OpenAI.

Speaker 10 Many of them were invented 20 years before by machine learning scientists. So they just took them, but they combined them quite well.
How many more times can they do that?

Speaker 10 That's going to be one of the questions. And then, of course, it's not just the US and China.
Can other countries catch up? Europe is behind, clearly.

Speaker 10 But I don't think there is a law that Europe has to be behind.

Speaker 10 There are many talented AI scientists in Europe. They just happen to be all working in Silicon Valley.

Speaker 11 I think this is a good segue into your 2012 book, Why Nations Fail. We're discussing how America could fall behind in the AI race.

Speaker 11 And it's interesting, you're kind of highlighting that on the one hand, there are some benefits to this top-down communist structure where you can set the agenda and the tone for the nation, the tone being we love engineers and we love people who build AI.

Speaker 11 On the other hand, it can be a problem when you don't have the competitive forces of capitalism at work.

Speaker 11 And it seems as though this is going to be sort of the defining question of our time, which one works.

Speaker 10 100%.

Speaker 10 I I think that's a very, very well put.

Speaker 11 Which brings me to the question, why do nations fail? I mean, you've done Nobel Prize-winning research on this, the role of institutions.

Speaker 11 Why do nations fail?

Speaker 10 It's mostly institutions. There are other factors, but many of these other factors, such as civil wars, are institutional as well.
And the role of institutions,

Speaker 10 both formal rules, but also informal arrangements and norms, they become much more important when we're dealing with sectors that are forward-looking,

Speaker 10 innovative, require small players to scale up.

Speaker 10 All of those are things that the U.S.

Speaker 10 was doing quite well.

Speaker 10 The United States

Speaker 10 had an ecosystem of startups that were extremely confident. people when they open i mean i i knew many of them i know many of them

Speaker 10 very few people think well if i launch a startup and if i'm successful will i be shut down by courts will i be crashed by my competitors will i be able to get any contracts when my competitors are favored by the government nobody thought about that nobody thought about that partly because I think people were on the optimistic side, but largely because U.S.

Speaker 10 institutions had a pretty good track record of not doing that.

Speaker 10 I think we're no longer sure.

Speaker 10 There are favored companies and not favored companies. Courts are much less impartial.

Speaker 10 Scaling up may become much harder when there is more uncertainty. So I think there are a bunch of issues where the institutional advantage that the US economy had is more of a question mark today.

Speaker 10 And the problem is that when you mess up certain things, you pay the price right away.

Speaker 10 If you mess up institutions, especially as they pertain to innovations, you don't pay the price because the impact's not going to be felt for another five, 10 years.

Speaker 10 So if there are some fundamental negative effects from Trump's attack on

Speaker 10 independent judiciary,

Speaker 10 the costs of that will be realized not in 2027 or 2028, but probably in the 2030s.

Speaker 11 What is like the counterfactual to an institution-led society?

Speaker 11 Like when we talk about it's the societies that have had strong institutions, those are the ones that have worked out, and that's what your research has explained to us. What is the alternative?

Speaker 11 What is a a society that is not led by institutions actually look like? What enters the void?

Speaker 11 How does that lead to a less prosperous path?

Speaker 10 Well, I mean, I would think that every society has forms of institutions, but let's change your question to state-led versus not state-led. Okay.
So the Soviet Union was state-led,

Speaker 10 but too much state, not enough market, not enough decentralization, and that was horrible. But, you know, Somalia,

Speaker 10 where Klans ruled for several decades after the collapse of the state, is the outer opposite. There are no state institutions that were functional.
There's no third-party enforcements.

Speaker 10 There's anarchic ways in which even small problems would escalate. Neither of these two are great.

Speaker 10 Probably the Somalia is worse than the Soviet Union for economic activity, although probably the Soviet Union makes up for it by killing people more effectively.

Speaker 10 So I think that happy medium where there is enough decentralization of especially economic activity, but also other things like communication, dissent, etc.

Speaker 10 But there are state institutions that can be leveraged for doing good things, such as supporting innovation, providing public services, defense.

Speaker 10 I think that happy medium is hard to maintain, but many societies did maintain it for

Speaker 10 several decades, U.S. did for longer.

Speaker 11 Yeah, if I could sort of summarize what my takeaway from your research to be, it's something along the lines of

Speaker 11 this question of why are institutions even good for us, it's something along the lines of

Speaker 11 they

Speaker 11 prevent extreme concentration of power into the hands of someone who may not know what they're doing.

Speaker 11 That to me is the defining difference as to why there are societies that work out and there are societies that don't, as proven with the Soviet Union.

Speaker 11 You can argue maybe even today with Russia, where the institutions have been kind of taken over by Putin and any other failed society. Is that right?

Speaker 10 Absolutely. And if you look at the data, you see that, for example,

Speaker 10 economic performance under dictatorships

Speaker 10 is not just worse than democracies, but it's also more variable.

Speaker 10 And that reflects exactly what you're articulating, which is sometimes you're going to end up with a complete idiot as your dictator, and that's a real disaster.

Speaker 10 But even very smart people can be very dangerous because their incentives are not aligned with the rest of society. So Stalin

Speaker 10 didn't do huge amount of damage because he was an idiot. He wasn't definitely no genius.

Speaker 10 But he did know some of the things he was doing in terms of killing people and creating an enormously powerful secret service, secret police.

Speaker 10 So so somebody who has the wrong incentives and the wrong motivations, even when they are talented, could do a lot of damage. So, a democratic system

Speaker 10 via

Speaker 10 checks and balances, civil society mobilization, ability to change and kick out politicians when they don't do what they're supposed to do, I think creates a lot of pathways for not falling victim to that.

Speaker 11 Given all of that,

Speaker 11 what do you make of what's happening in America today? What do you make of Trump's administration thus far? What do you think? What kinds of impacts do you think it will have on the economy?

Speaker 10 I think institutions

Speaker 10 are really the secret source for the United States.

Speaker 10 The U.S. is one of the most innovative economies in the world, and that comes because people are fairly confident that they can do new things and succeed.

Speaker 10 The American advantage in finance is also about institutions.

Speaker 10 You know,

Speaker 10 during the the financial, global financial crisis, which was initiated, you know, largely speaking in the United States, what did foreign investors do? They put more of their money in the U.S. Why?

Speaker 10 Because during a crisis, they believe

Speaker 10 U.S. assets, equities, corporate debt, government debt, are just much more reliable, much more liquid than the alternatives.
That's also institutional. You don't want to be subject to Chinese courts.

Speaker 10 You want to be subject to American courts. So all of those those require a degree of independence in the judiciary and predictability and impartiality in the broader institutional rules.

Speaker 10 Trump's agenda, which is not unique to Trump, but is an extreme version, is to build a much more executive presidency, meaning the president

Speaker 10 has far greater power than what has been the norm, and the other branches of government and the agencies are not as powerful.

Speaker 10 I think that comes with a serious risk that those institutional balances are going to be disrupted. And we're already seeing that in terms of

Speaker 10 corruption, in terms of people in the administration enriching themselves.

Speaker 10 But more importantly, I think a lot of uncertainty, for example, in the area of tariffs, what's going to happen next month to tariffs. That's the kind of uncertainty that strong institutions avoid.

Speaker 10 If that happens, that secret source that has been so valuable to the American economy will start disappearing.

Speaker 5 Aaron Powell, we've been surprised at how well the economy, or at least the markets, have done, because

Speaker 5 we see the same issues you do, a lack of rule of law, lack of competition, regulatory capture.

Speaker 5 But meanwhile, it looks as if the American economy and there are some warning signs, but we've been shocked at how well it continues to grind on. A, are you surprised? And B, do you think

Speaker 5 that there's just a lag or that there's that we're not seeing kind of the

Speaker 5 real issues here?

Speaker 5 Where is the state of the economy right now relative to what your perceptions would have been about it, given some of the concerns you've raised?

Speaker 10 All of the above.

Speaker 10 So I think some of it is that there are lags.

Speaker 10 Some of it is that AI optimism is masking

Speaker 10 the problems.

Speaker 10 Part of the reason why the economy and the stock market are booming is because there's a huge amount of AI investment.

Speaker 10 Part of it is that

Speaker 10 tax cuts would, if you did nothing else, nothing else changed, and you just did a tax cut that favored capital,

Speaker 10 that would lead to stock market valuations increasing. And then the stock market is, of course, the incumbents.

Speaker 10 So if there are changes in the economy such that startups start having a harder time, that may not be great for the economy, but it's not going to be as bad for the incumbents that will be protected from the startups.

Speaker 10 So, there are a number of layers here that I think are intersecting.

Speaker 10 But some of it, I think, is just that with tariffs, for example, we haven't seen their full effects on prices.

Speaker 10 We haven't seen their full effects on supply chains because, you know, everything is changing so rapidly. i'm surprised what i'm surprised by is i'll tell you scott

Speaker 10 is that people haven't been spooked as much by uncertainty so the belief among economists macroeconomists was that uncertainty spooks investment that hasn't happened we've had a lot of uncertainty and that hasn't really translated into people saying, well, let me hold back on my investments because I don't know what the future is going to look like.

Speaker 10 So that may be because of AI, it may be because of other things. I don't know.
When you look at America right now,

Speaker 11 what are your top concerns?

Speaker 11 I mean, you mentioned that institutions are the secret source of America.

Speaker 11 And it appears that institutions are under attack in some form or another, whether that's the BLS or whether it's the Federal Reserve.

Speaker 10 What are your major concerns for America right now? There are several layers of institutions that worry me. Starting from the top, not in terms of

Speaker 10 importance.

Speaker 10 I think I would have to think a little bit harder to give you importance weights. But first of all, our ability to control corruption,

Speaker 10 enrich self-enrichment, enrichment of friends and family, those have become much weaker.

Speaker 10 Independence of bedrock

Speaker 10 institutions, judicial branches, that's much weakened. Like FBI,

Speaker 10 like it or not,

Speaker 10 and there were many things not to like about it, but it had an ethos of independence and not being political. That's gone.

Speaker 10 There is

Speaker 10 a network of information provision institutions from the government accounting office, office of budget management, BLS, BEA, census, those are being weakened.

Speaker 10 So, our ability to track the economy is going to be much weaker. And then, you know, very fundamentally,

Speaker 10 because politics is becoming more conflictual and polarized, there are concerns that

Speaker 10 we're going to be much less successful in the future in keeping politicians accountable.

Speaker 11 We'll be right back. And for even more markets content, sign up for our newsletter at profitymarkets.com slash subscribe.

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Speaker 11 We're back with Profit Markets.

Speaker 5 When you we talk, it seems like these discussions are always about the U.S. versus China.
I'm living in London right now and

Speaker 5 you're originally from Turkey.

Speaker 5 Do you see any other nations or academic institutions that you're very hopeful on? If you were to make a bet on an economy right now, other than the U.S.

Speaker 5 or China, which economies would you make a bet on?

Speaker 10 Well, I think the problem is, Scott,

Speaker 10 that in many areas,

Speaker 10 especially in AI, scale matters.

Speaker 10 You know, Swiss academic institutions are doing great relative to their scale, but they're never going to be, Switzerland as a country is never going to be a rival by itself

Speaker 10 to the United States or to China, just in terms of resources,

Speaker 10 both human and financial.

Speaker 10 So you really need European

Speaker 10 academic system to come together. And it has some great strengths and it has many weaknesses.
It is not integrated. In its best, the American system was much, much more integrated.

Speaker 10 You know, institutions in California and Cambridge, you know, thousands of miles apart, they're still much more integrated than, you know, those in different parts of Europe were.

Speaker 10 And that creating a hub like Silicon Valley or other places, at some point it was in Boston, That's very, very important. And you need that kind of concentration of energy.

Speaker 10 I don't think that it's impossible for Europe to achieve that. And there are

Speaker 10 several people who are thinking about that. For example, Mario Draghi of the European Central Bank fame

Speaker 10 sort of recently came out with a report asking much more investment in AI and digital technologies to sort of tick-start something at the European level. you know, what will succeed?

Speaker 10 And when it's government-directed, there are many risks, especially when you have the national bureaucracies overlaid with European Commission bureaucracy.

Speaker 10 So I wouldn't bet that it's going to work out anytime soon, but I wouldn't want to bet against it either.

Speaker 10 Also, for, you know, I think the world would be much healthier if we had a true multipolar world in terms of research, in terms of new ideas, not just US versus China, but US, China, Europe, but also something from the developing countries.

Speaker 10 There's tremendous energy in India,

Speaker 10 in other parts of the world, about new techs,

Speaker 10 new ideas, new entrepreneurship, new risk-taking. I think the world would be just much richer if those countries also had their intellectual fingerprints on these advances.

Speaker 5 We think a lot about the well-being of young men on this program.

Speaker 5 And something that has, I won't speak for Ed, has me suitably freaked out, is a collision between AI and synthetic relationships that could potentially further sequester and isolate young men from relationships with their parents, diminish their desire to develop romantic relationships, establish friendships.

Speaker 5 Are we catastrophizing here? I see this as a disaster with no guardrails. And I can't tell if it's just as I get older, professor, I'm getting more angry and depressed, or if I see something here.

Speaker 5 What are your thoughts about character AI, synthetic relationships?

Speaker 10 I'm very worried, but not just for men. I mean, look, for social media, actually, the effect has been larger on women.

Speaker 10 I think many of these technologies that completely transform social relations

Speaker 10 have so many unforeseen consequences.

Speaker 10 You know, despite many mistakes and misdeeds that, you know, Facebook, Meta, et cetera, Instagram did, they didn't set out to create a mental health crisis. That was a side effect.

Speaker 10 Now with some of these things like character AI, they're actually intending to create completely artificial bubbles. So yes, I would definitely be worried about that.

Speaker 10 But the only thing I have as a small

Speaker 10 source of sort of silver lining is that

Speaker 10 they're not going to happen overnight.

Speaker 10 So these models are still going to be very clunky. So we still have some time.
And that's why it's so important to ask the questions: what is it that we want from AI?

Speaker 10 Do we want character AI and all of these synthetic relations and all of this isolation? Do we want

Speaker 10 how fast automation? Or is there something we can do with this very promising technology?

Speaker 5 What field or what specific application do you feel holds the most promise for AI?

Speaker 10 I think by its nature, AI could be revolutionary for many fields.

Speaker 10 Certainly, the process of science is already benefiting. We can do many more things.

Speaker 10 I think a lot of occupations that involve interaction with the real world in a problem-solving manner can really benefit from AI.

Speaker 10 So that's like electricians, plumbers, blue-collar workers, because they're engaged in a series of problem-solving tasks.

Speaker 10 And AI-based, context-specific, reliable information could be a game changer there. A lot of other non-scientific creative occupations could get a boost as well.

Speaker 10 So there are actually a lot of different things that we could do. Healthcare and education are becoming a bigger and bigger share of national income everywhere.

Speaker 10 And those are the two sectors where we've had very little productivity gains. So macroeconomic productivity gains are held back because of these services.
If we can do anything with AI to kickstart

Speaker 10 faster productivity growth in these sectors, that would be a game changer.

Speaker 11 You've been described as the Wilt Chamberlain of economics.

Speaker 11 You are sort of a powerhouse academic,

Speaker 11 powerhouse economist. You've written books.
You've taught at MIT. You've won a Nobel Prize.

Speaker 10 The list goes on.

Speaker 11 I'd love to, on the subject of institutions, I'd love to get your views on just the future of academic institutions right now. They've also been under attack in a variety of ways.

Speaker 11 How do you feel about academia as a field? Do you feel optimistic, pessimistic? What does the future of academics actually look like?

Speaker 10 An important part of the institutional fabric of this society is also to provide foundational inputs into innovation via the academic educational process. And that's also in danger.

Speaker 10 Look, I think there were many things that were wrong with academia before Trump,

Speaker 10 But the current attack on the autonomy of universities cannot be justified by

Speaker 10 those

Speaker 10 problems.

Speaker 10 And I think it risks being more encompassing than those problems, whether you're going to call them DEI or whatever they are, ever could have been.

Speaker 10 Because now funding and government control are all levers

Speaker 10 that a centralized authority can exercise over universities and academics.

Speaker 10 And whenever that has happened in other countries, for example, in my country of birth, in Turkey or in Hungary, you see the costs have been quite extreme.

Speaker 11 Yeah, how does that play out? How do those costs materialize?

Speaker 10 Well, first of all, I think

Speaker 10 very important

Speaker 10 projects that are forward-looking don't get funded. You know, today it's very difficult, for example, example, to get funding for mRNA vaccines.

Speaker 10 And those were going to potentially play an important role in fighting cancer and other sort of diseases for which we could

Speaker 10 develop new vaccine-based approaches.

Speaker 10 And that's just the tip of the iceberg. But even more importantly, I think when the autonomy of universities starts being threatened, people become more timid

Speaker 10 in their risk-taking, and that risk-taking there involves going against established ways or things that powerful actors believe. So I mentioned earlier on, in China, the top-down structure is

Speaker 10 really very costly. I think one of the costs you can see very clearly is in academia.

Speaker 10 In Chinese academia, despite the fact that you have very talented people selected into it and you have high degree of engineering or other expertise, it's much more political.

Speaker 10 So nobody wants to rock the boat, which means people are not really exploring more controversial topics, whether it is in social sciences or in physical sciences.

Speaker 10 And that environment, once it sets in, is very difficult to reverse. One of the great things about American academia was that sort of

Speaker 10 very risk-taking attitude, exploring things that are at the edges, you know, that could become much harder.

Speaker 11 Just observationally or anecdotally, from my perspective, I feel like academia and pursuing a career in academia has very recently gotten kind of a bad rap.

Speaker 11 It's almost as if academia, the expert class, there's this stuffy expert class that is either captured by wokeness or by, you know, they're trapped in the ivory tower or whatever it is.

Speaker 11 And I see this among my friends, many of whom were going to pursue careers in academia and then decided,

Speaker 11 no, this world rewards entrepreneurs. This world rewards people who start companies and work for big tech.
I'm wondering if you've seen that yourself.

Speaker 11 Have you seen that there is sort of a lesser interest in pursuing these kinds of careers?

Speaker 10 I have, absolutely. And I think

Speaker 10 some of it is real and some of it is a perception. So indeed, I think

Speaker 10 there is the right kind of technocracy and the wrong kind of technocracy.

Speaker 10 As the world becomes more complex and there are more

Speaker 10 areas in which expertise, deep knowledge matters, you need technocracy, but you need technocracy to be accountable

Speaker 10 and to be sort of in conversation with the rest of the community. So, in some sense, yes, the wrong kind of technocracy has emerged to some degree in many countries where

Speaker 10 experts, whether they are in universities or bureaucracy, sometimes know it best.

Speaker 10 But I think some of what you're describing is also an exaggerated feeling of,

Speaker 10 you know, in fact, you know, some of the things that those experts were saying are, in fact, true. For example, on vaccines or climate change.

Speaker 10 It's just that they did not communicate it very well and the whole thing became unnecessarily politicized. And it's not just in academia.

Speaker 10 Look, for example, mRNA vaccines were not spearheaded by academia. They were spearheaded by startups and companies that thought they could really break the mold by doing something very different.

Speaker 10 So, it's that whole ecosystem that's being threatened right now.

Speaker 11 It almost feels as if our culture is just so dead set on finding out who are the experts, who are the people who are telling us how it is, and can we find a way to discredit them and tell them that they're wrong?

Speaker 11 And in a lot of ways, it seems ridiculous that to say, oh, it's the university professors that are telling us. It's like, actually, these are not the people who are in control right now.

Speaker 11 You're being told a whole set of things.

Speaker 5 They've never been.

Speaker 10 They've never been. I mean,

Speaker 10 they may be accused of being arrogant, that's for sure.

Speaker 10 But that arrogance was never matched with real power.

Speaker 10 Exactly.

Speaker 11 Yeah, I wish more people could understand that.

Speaker 11 My final question.

Speaker 11 Do you have any advice for young academics, for people who are interested in pursuing a career in academia, who are maybe

Speaker 11 asking those questions that we just discussed as someone who's had so much success in the field? What would your advice be?

Speaker 10 You know, I get very frustrated when you know people say, oh, you know, you should work on this topic because this topic has

Speaker 10 potential and there might be demand here. No, I think the real secret source in academia is you should work on whatever you're passionate about.
And the best academic research comes when

Speaker 10 it's really sort of your own passions that you are following.

Speaker 10 And that's even more important when academia is under attack because some of the great research can be done even when budgets are slashed, because you've just committed to it.

Speaker 10 And it's not about the biggest lab, it's not about the best measurement instruments, but it's about doggedly pursuing something that you feel is right and you can prove it.

Speaker 11 Doran Osimoglu is an institute professor at MIT and co-director of the University Center on Inequality and Shaping the Future of Work.

Speaker 11 He is also the author of six books, including the New York Times best-selling Why Nations Fail and Power and Progress, Our Thousand Year Struggle Over Technology and Prosperity.

Speaker 11 He was awarded the Nobel Prize in Economic Sciences in 2024 for his studies of how institutions are formed and affect prosperity.

Speaker 11 Professor Assim Mogli, we really appreciate your time. And I think you're the first Nobel Prize winning guest we've had on the podcast.
So it's a win for us too.

Speaker 10 My pleasure, Edmund. Thank you very much, Scott.
This is great and very happy to have been able to join you guys.

Speaker 5 That's our pleasure. Congrats again on your good work.

Speaker 11 This episode was produced by Claire Miller and Alison Weiss and engineered by Benjamin Spencer. Our research team is Dan Shalon, Isabella Kinsel, Kristen O'Donoghue, and Mia Silverio.

Speaker 11 Drew Burroughs is our technical director, and Catherine Dylan is our executive producer.

Speaker 11 Thank you for listening to Profit You Markets from Profit Media. If you liked what you heard, give us a follow and join us for a fresh take on markets on Monday.

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