Here’s a random list of economic concepts that I wish tech people were more familiar with of. I’ll focus on concepts, not findings, and on intuition rather than exposition.
The semi-endogenous growth model: There is a tug of war between diminishing returns to R&D and growth in R&D capacity from economic growth. For the rate of progress to even stay the same, R&D capacity must continually grow.
Domar aggregation: With few assumptions, overall productivity growth depends on sector-specific productivity growth in proportion to sectors’ revenues. If a sector is 11% of GDP, the economy is “11% bottlenecked” on it.
Why wages increase exponentially with education level: This is empirically observed to be roughly true (the Mincer equation), but why? A simple explanation: the opportunity cost of education is proportional to the wage you can earn with your current level of education. So to be worthwhile, obtaining one more year of education needs to increase your wage by a certain percentage, no matter your current level of education. Each year of education earning people 10% more will look like an exponential.
This is basically “P = MC”, but applied to human capital.
Automation only decreases wages if the economy becomes “decreasing returns to scale”.This post has a good explanation. Intuition: if humans don’t have to compete with automated actors for things that humans can’t produce (e.g., land or energy), humans could always just leave the automated society and build a 2025-like economy somewhere else.
Automation only decreases wages if the economy becomes “decreasing returns to scale”
Seems straightforwardly false? The post you cite literally gives scenarios where wages collapse in CRS economies. See also the crowding effect in AK models.
Wow, I didn’t read. Their argument does make sense. And it’s intuitive. Arguably this is sort of happening with AI datacenter investment, where companies like Microsoft are reallocating their limited cash flow away from employees (i.e., laying people off) so they can afford to build AI data centers.
A funny thing about their example is that labor would be far better off if they “walled themselves off” in autarky. In their example, wages fall to zero because of capital flight — because there is an “AK sector” that can absorb an infinite amount of capital at high returns, it is impossible to invest in labor-complementary capital unless wages are zero. So my intuition that humans could “always just leave the automated society” still applies, their example just rules it out by assumption.
I would appreciate it if you could correct the bullet point in your original shortform :) You can edit your comment if you click the triple dot on the top right corner. I had strong downvoted it because it contained the false statement.
zooming out as far as it goes, the economy is guaranteed to become decreasing-returns-to-scale (upper-bounded returns to scale) once grabby alien saturation is reached and there is no more unclaimed space in the universe
if humans don’t have to compete with automated actors for things that humans can’t produce (e.g., land or energy), humans could always just leave the automated society and build a 2025-like economy somewhere else
That only holds true if there exists such a “somewhere else”, and already on Earth as is, there just isn’t. Any innovation will quickly spread to every economy that has the capacity to accept it, and every square inch of the planet is either uninhabitable or monopolized by a state. This is in fact something that gets often highlighted in science fiction involving interplanetary colonization—one of the first things we (rightfully) imagine people doing is “fucking off to some distant planet to build the society they would like for themselves”. We know something like that happened with Europeans leaving for the Americas in the 16th and 17th centuries, and it would likely happen again if there was room to allow it.
This is a consequence of decreasing returns to scale! Without decreasing returns to scale, humans could buy some small territory before their labor is obsolete, and they could run a non-automated economy just on that small territory, and the fact that the territory is small would be no problem, since there are no decreasing returns to scale.
Well, that hits a limit no matter what. We have a physical scale set by the size of our own bodies. Also, I don’t believe there exists a single m2 of land on Earth where it would be legal to just go make your own country. People have tried with oceanic platforms, to mixed results.
I’m biased towards believing that culture is far more important to R&D progress than how much capital you can throw at it, atleast once you have above $100M to throw at it. Hamming question is important, for example.
Economists are not the best people to ask about the best culture to run a scientific lab.
Here’s a random list of economic concepts that I wish tech people were more familiar with of. I’ll focus on concepts, not findings, and on intuition rather than exposition.
The semi-endogenous growth model: There is a tug of war between diminishing returns to R&D and growth in R&D capacity from economic growth. For the rate of progress to even stay the same, R&D capacity must continually grow.
Domar aggregation: With few assumptions, overall productivity growth depends on sector-specific productivity growth in proportion to sectors’ revenues. If a sector is 11% of GDP, the economy is “11% bottlenecked” on it.
Why wages increase exponentially with education level: This is empirically observed to be roughly true (the Mincer equation), but why? A simple explanation: the opportunity cost of education is proportional to the wage you can earn with your current level of education. So to be worthwhile, obtaining one more year of education needs to increase your wage by a certain percentage, no matter your current level of education. Each year of education earning people 10% more will look like an exponential.
This is basically “P = MC”, but applied to human capital.
Automation only decreases wages if the economy becomes “decreasing returns to scale”.This posthas a good explanation. Intuition: if humans don’t have to compete with automated actors for things that humans can’t produce (e.g., land or energy), humans could always just leave the automated society and build a 2025-like economy somewhere else.Seems straightforwardly false? The post you cite literally gives scenarios where wages collapse in CRS economies. See also the crowding effect in AK models.
Wow, I didn’t read. Their argument does make sense. And it’s intuitive. Arguably this is sort of happening with AI datacenter investment, where companies like Microsoft are reallocating their limited cash flow away from employees (i.e., laying people off) so they can afford to build AI data centers.
A funny thing about their example is that labor would be far better off if they “walled themselves off” in autarky. In their example, wages fall to zero because of capital flight — because there is an “AK sector” that can absorb an infinite amount of capital at high returns, it is impossible to invest in labor-complementary capital unless wages are zero. So my intuition that humans could “always just leave the automated society” still applies, their example just rules it out by assumption.
I would appreciate it if you could correct the bullet point in your original shortform :) You can edit your comment if you click the triple dot on the top right corner. I had strong downvoted it because it contained the false statement.
Edited!
zooming out as far as it goes, the economy is guaranteed to become decreasing-returns-to-scale (upper-bounded returns to scale) once grabby alien saturation is reached and there is no more unclaimed space in the universe
That only holds true if there exists such a “somewhere else”, and already on Earth as is, there just isn’t. Any innovation will quickly spread to every economy that has the capacity to accept it, and every square inch of the planet is either uninhabitable or monopolized by a state. This is in fact something that gets often highlighted in science fiction involving interplanetary colonization—one of the first things we (rightfully) imagine people doing is “fucking off to some distant planet to build the society they would like for themselves”. We know something like that happened with Europeans leaving for the Americas in the 16th and 17th centuries, and it would likely happen again if there was room to allow it.
This is a consequence of decreasing returns to scale! Without decreasing returns to scale, humans could buy some small territory before their labor is obsolete, and they could run a non-automated economy just on that small territory, and the fact that the territory is small would be no problem, since there are no decreasing returns to scale.
Well, that hits a limit no matter what. We have a physical scale set by the size of our own bodies. Also, I don’t believe there exists a single m2 of land on Earth where it would be legal to just go make your own country. People have tried with oceanic platforms, to mixed results.
I’m biased towards believing that culture is far more important to R&D progress than how much capital you can throw at it, atleast once you have above $100M to throw at it. Hamming question is important, for example.
Economists are not the best people to ask about the best culture to run a scientific lab.