Excellent post, strong upvote. You’ve done a great job articulating what I felt as basically just a twisting of the guts whenever I read economic analysis of the idea of AGI. Tackling the problem head-on:
Model AI as a firm directly: I believe AI straightforwardly breaks the usefulness of the capital-labor distinction. The central crux for me is the extent to which the AI could perform the knowledge work of corporate management; I claim it doesn’t matter for economic purposes that the source of the decisions is an abstract machine the company owns (or rents), what matters for economic purposes is the level at which the decisions are made. If AI makes the management decisions for the firm, to the rest of the economy they are indistinguishable.
For modelling AI-as-a-firm:
Information Asymmetry: I predict the AI will have an information advantage over most other actors in the economy, and once we cross the AGI threshold over all non-AI actors in the economy, at least eventually. This might be a reasonable economics-view-definition of AGI: the threshold at which it achieves local information asymmetry on all transactions.
Transaction Costs: I expect transaction costs to be systematically lower for AI firms through the time-cost decisions. I make a concrete analogy is high frequency trading, where a fast trading algorithm can see a new buy order, go purchase the better orders on the market, and return to sell to the original order.
Some second-order items I would like to see:
Principal-Agent problems: This is how economics tackles alignment problems. Currently we model OpenAI/Anthropic as owning ChatGPT/Claude respectively, under capital; if the AIs were instead modeled as firms independently and viewed as subcontractors (albeit with contracts strongly favoring OpenAI/Anthropic) and apply the information asymmetry and transaction cost modifications above, what does a principal-agent model predict?
EMH-breaking threshold: My intuition is that the information asymmetry and transaction cost advantages are mutually reinforcing, but the idea I think is more important is that doing a transaction provides much more detailed information than a price signal. A systematic advantage in completing transactions means a systematic accumulation of higher dimensional information than prices; because the EMH works on price signals, I expect it will be defeated if it is possible to aggregate higher-dimensional signals than price.
Excellent post, strong upvote. You’ve done a great job articulating what I felt as basically just a twisting of the guts whenever I read economic analysis of the idea of AGI. Tackling the problem head-on:
Model AI as a firm directly: I believe AI straightforwardly breaks the usefulness of the capital-labor distinction. The central crux for me is the extent to which the AI could perform the knowledge work of corporate management; I claim it doesn’t matter for economic purposes that the source of the decisions is an abstract machine the company owns (or rents), what matters for economic purposes is the level at which the decisions are made. If AI makes the management decisions for the firm, to the rest of the economy they are indistinguishable.
For modelling AI-as-a-firm:
Information Asymmetry: I predict the AI will have an information advantage over most other actors in the economy, and once we cross the AGI threshold over all non-AI actors in the economy, at least eventually. This might be a reasonable economics-view-definition of AGI: the threshold at which it achieves local information asymmetry on all transactions.
Transaction Costs: I expect transaction costs to be systematically lower for AI firms through the time-cost decisions. I make a concrete analogy is high frequency trading, where a fast trading algorithm can see a new buy order, go purchase the better orders on the market, and return to sell to the original order.
Some second-order items I would like to see:
Principal-Agent problems: This is how economics tackles alignment problems. Currently we model OpenAI/Anthropic as owning ChatGPT/Claude respectively, under capital; if the AIs were instead modeled as firms independently and viewed as subcontractors (albeit with contracts strongly favoring OpenAI/Anthropic) and apply the information asymmetry and transaction cost modifications above, what does a principal-agent model predict?
EMH-breaking threshold: My intuition is that the information asymmetry and transaction cost advantages are mutually reinforcing, but the idea I think is more important is that doing a transaction provides much more detailed information than a price signal. A systematic advantage in completing transactions means a systematic accumulation of higher dimensional information than prices; because the EMH works on price signals, I expect it will be defeated if it is possible to aggregate higher-dimensional signals than price.