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GDP has long been used as a measure of material prosperity and human wellbeing, but it may not be the most accurate proxy. Digitalization has decoupled physical goods from digital goods and microtransactions have not been captured in GDP. Tony and Jamie have theorized a shift in the operating system, but resources such as talent and positions in networks will remain scarce and valuable, and GDP will continue to be the main measure of economic value. Governments should spend more of GDP on policies that would allow people to have more children and measure long-term well-being.

Short Summary

The speaker discusses the relevance of GDP as a measure of material prosperity and human wellbeing, suggesting that it may not be the most accurate proxy. They mention the example of Valve, a video game developer, who has hired an economist to measure the economy of its games. GDP growth is measured by the percentage change from one year to the next, but this fails to take into account long-term well-being. To ensure better well-being, the government should spend a higher percentage of GDP on policies that would allow people to have more children. GDP may no longer be a reliable measure of human wellbeing, and it is important to consider the role of GDP and its growth when determining well-being.
The transcript discusses the impact of digitalization on GDP, with physical goods being decoupled into digital goods, and how this has removed certain products from what GDP measures. It discusses Napster and streaming services, which are not economically beneficial, as revenue from streaming is significantly lower than from CD sales. It also imagines a future where physical trade is eliminated and only a few niches remain, and suggests that licensing for movies and TV shows is an enormous market that should not be underestimated. Finally, it highlights the failure of GDP to measure the productive contribution of child rearing and education, and the potential for measures that better capture the growth factors of the economy.
Microtransactions have been met with disagreement, as increases in productivity have not been reflected in GDP, and more stuff does not necessarily lead to improved human well-being. Artificial light is an example of how disruptions can have a profound effect on an economy, but GDP may not have been useful during these transitions. Tony and Jamie have theorized a shift in the operating system which could enable GDP growth to continue. As productivity increases, GDP will become less relevant as a measure of scarcity and trade, but resources such as talent and positions in networks will remain scarce and valuable. Despite exponential economic growth, there will still be a frontier and a center where it is more valuable to be, and GDP will continue to be the main measure of economic value.

Long Summary

The transcript discusses the relevance of GDP and whether it can be seen as decoupling from its original purpose due to technological disruption. The Reserve Bank of Australia is mentioned as defining GDP as the average of three figures: total value produced, total income and total expenditure. It is thought that this method of calculation is outdated and may not be accurate. The developers of large-scale online games with their own economies are mentioned, and it is suggested that they may measure GDP differently. It is suggested that Valve, a video game developer, has hired an economist to measure the economy of its games.
The speaker is discussing the role of the former Greek treasurer, who also served as the chief economist at Valve Software. He is exploring how GDP can be used to measure material prosperity and whether it is a good proxy for human wellbeing. He suggests that in some societies, people may suffer more from social, psychological and existential reasons, rather than lack of material resources. He argues that material prosperity points in one direction as a proxy for something we deeply care about, which is human wellbeing.
GDP is often used as a proxy for material prosperity and human well-being. However, it is an imperfect measure, as it relies on other phenomena such as production, consumption and reported income which can only be measured imperfectly. This raises the question of whether GDP is still an accurate measure of material prosperity, and if not, what the erosion of it would look like. Additionally, there is a concern that GDP may fail to measure prosperity, and that prosperity may not truly reflect well-being.
GDP is often used as a proxy for well-being, but it may not be the most accurate measure. It may be better to separate out material prosperity from other factors that can influence well-being, such as social and psychological services. GDP growth is often mentioned in reports, but the actual GDP figure is less common. It is important to consider the role of GDP and its growth in determining well-being, and to be cautious of oversimplifying the relationship between the two.
GDP growth is measured by the percentage change from one year to the next. However, this measure fails to take into account the long-term well-being of people, as seen in the fertility crisis in China. The Chinese government is desperate to encourage population growth, but many women are unwilling to make the trade-off between career and having children. To ensure long-term well-being, the government should spend a higher percentage of GDP to implement policies that would allow people to have more children.
The GDP fails to capture the relevant trends in regards to child rearing, as the value produced by women is not directly valued. This is an example of where GDP has failed to optimise, as it does not invest in human capital. The contraceptive pill allowed for this situation to exist, and is an example of technological disruption, linked to the disruption of the fountain pen by ballpoint pens, due to the entrepreneur who developed the ballpoint pen technology in the 1930s. This individual went on to spend his fortune developing synthetic hormone production technology, which could be argued to be a bigger disruption than initially thought.
The contraceptive pill has had a profound impact on human history, but the failure of GDP to measure the productive contribution of child rearing and education has led to policies that have been detrimental to long-term productivity. This question has been raised in order to consider the implications of this failure and to discuss the potential for measures that better capture the growth factors of the economy.
The transcript discusses the decoupling of physical goods into digital goods due to the combination of computers, networking technology, and other information technologies, such as sensors and software. This has resulted in physical products disappearing from GDP, even though more images are being produced than ever before. It is not clear if this trend of decoupling physical goods into digital goods can continue in any kind of continent trend.
The transcript discusses how digitalization has affected GDP by removing certain products from what it measures. It also imagines a future where physical trade is eliminated and only a few niches remain. It then looks at how people made money from music in the past, before Napster, and how digital form was a pure loss before that period. It suggests that licensing for movies and TV shows is an enormous market, and that this should not be underestimated.
Napster was not an economically beneficial service, as it was a net drain on measurable economic activity. Streaming services are now the most popular form of music consumption, but the revenue from streaming is significantly lower than from CD sales. This is due to the extremely low marginal cost of music, meaning it is not profitable to engage in traditional per unit market transactions. Instead, new markets with different business models have emerged, such as streaming, where users do not pay for individual units of music, but rather pay a subscription fee.
People have disagreed with the idea of microtransactions, instead favouring subscription services. Improvements in technology have led to thousands of times more of certain products, however this has not been reflected in GDP, leading to the Paradox of increasing material Prosperity not being captured. This does not necessarily translate to improved human well-being either, as psychological research has shown that beyond a certain point, more stuff does not make us happier.
The example of artificial light is a clear example of how disruptions can have a profound effect on an economy. The shift from expensive candles to gas lighting and then to electrification freed up time and enabled people to work in factories. This increased economic output and compensated for the loss of economic output from buying and manufacturing candles. There is a lag period where the configuration of the economy is changing and GDP may remain constant. Once the phase transition is complete, the new system is capable of operating at a much higher level and can continue to grow.
GDP has been used as a measure of progress since the transition to artificial light, but it may not have been useful during some of these transitions. Two colleagues, Tony and Jamie, have written a book theorizing a shift in the operating system which uses the same language and metaphors as Dan. This shift in the structure of production could enable GDP growth to continue, and this is similar to what Ray Kurzweil has described about technology in general, which is that one technology leads to another which leads to another, and this cycle continues.
GDP is a measure of scarcity and the trade of scarce resources, which is becoming less relevant as productivity increases and more resources become abundant. The value of services, such as hairdressing, is not because of a scarce resource, but because of the service itself, which is scarce. This is evidenced by rising prices in densely populated areas due to people's desire for these services. As productivity increases, GDP will become less relevant as a measure of scarcity and trade.
The scarcity of resources, such as real estate, job opportunities and network effects, will continue to exist even if everything becomes digital. The true scarce resources are Talent, context and positions in networks, and the cost of higher education in the US keeps increasing due to this. Even with exponential economic growth, there will still be a frontier and a center where it is more valuable to be, and the entry points to these places will be the most valuable resources on Earth. GDP will continue to be the main measure of economic value.
The conclusion drawn is that despite the huge disruptions of physical products being replaced by services, GDP will still be a useful tool for measuring economic activity. This is because it will adapt to the changes in the economy and continue to measure scarce services that are still produced. This is a surprising result as it is quite convenient, however there is evidence of adaptive phenomena that seek homeostasis, which could be the case here. Ultimately, GDP will continue to be a reliable tool despite the profound changes in the economy.
The transcript discusses the shift away from physical possessions towards services and the access to these services being exchanged for more measurable quantities. It also looks at earlier periods of history where GDP would have been less useful due to transactions and activity not cashing out. The idea of informal economies and black markets are also mentioned, and how their proportion to the formal economy has changed over time. Finally, the transcript suggests a possible future economy that looks more feudal, with some kind of sovereigns having access to advanced AI.
The candidates' access to economic opportunities is linked to their ability to draw attention to themselves. This is already seen in how some fortunes made from cryptocurrencies are used to support different ventures. This could be seen as a quasi-feudal arrangement, and may lead to GDP becoming an obsolete measure. The speaker is interested in discussing what a future with technologically enabled material abundance may look like, although it is difficult to make formal predictions past a certain timeline. They are curious about what the intervening stages may look like and how this could affect GDP.

Raw Transcript

so last time we discussed this first question up on the board here which was uh we kind of spend a lot of time introducing GDP talking about what we use it for both as kind of policy makers and as individuals making decisions about investment and careers and so on and then we talked I guess a bit about how that how that process of making use of this figure might be derailed if the figure itself becomes less meaningful and therefore a less valid basis for action and decision making and the plan we discussed last time for today was to talk about the second question maybe even the third can we see hints of this decoupling or loss of relevance of GDP out there in the world today and we're sort of talking mostly about it as a consequence of technological disruption although maybe there's broader things also um yeah before you came in Adam on this third board up here I just put in uh I don't know if it's the same in the US but I looked at the Reserve Bank of Australia's web page and they Define GDP to be the average of three figures the total gdpp which is total value produced gdpi total income and gdpe total expenditure just added over all consumers and businesses and I guess the government as well so they're sort of as I meant I think correct me if I'm wrong but that looks to me like and I think I use the word triangulate last time but basically taking several measures that are at least in principle uh uh their their measures measuring roughly the same thing but it's hard to know where where there's error how much noise there is in the signal Beach it looks like they're just just giving these equal weight in a in a simple basically constructing a simple uh even weighting of these three is that is that fair okay um yeah I mean I don't know what I think about that even but uh uh it looks like something that's been done the same way for a very long time um possibly you know like long enough that it's been done this way since before computers were widespread for example um it has the it has the feel of of something from a very different era to me [Music] yeah you have to wonder whether the the developers of Eve online or large-scale online multiplayer games with their own economies what they do how they measure the I mean they must report to their shareholders something like GDP I guess but they have all the data it'd be interesting to see how they would do it differently but it really is yeah yeah that really would be I remember reading at some point that that valve hired and actually it was uh Janus
verifakis I'm pronouncing his name incorrectly I'm sure but do you know I'm speaking about it was the uh the treasurer I guess in Greece during the Showdown with Germany um some years ago uh yeah so he's a kind of a political power player globally but he spent some time as the chief Economist inside valve software uh this company that made Half-Life and many other games and now runs Steam so he was the uh I believe that's correct he was sort of playing that role that I just described of trying to run the internal economy of the gaming platforms if I get that strip fascinating okay um I think you had some well yeah so what's what's your introduction to question two here how are you put this in context yeah so the the I think this is a very interesting question can we see any hints already that that of of what we would expect to see if GDP were ceasing to to reflect the sorts of um if it were ceasing to actually indicate the things that were injured that were properly interested in and and in that sense I I I I I I think we're interested in GDP as an evaluate as a means of evaluating um fundamentally evaluating Prosper material Prosperity let's say that and um uh and there's there is an assumption both directions from Material Prosperity the the the from Material prosperity to sort of a a deeper level there's the assumption that material Prosperity is a reasonable proxy for human well-being writ large um and I think that I think that's quite Fair uh uh across the Great Arc of human history certainly and even in the modern modern era you know there are a lot of people who have who are still suffering terribly in the world and material Prosperity is a massive portion of what causes suffering in the real real world still today well yes in some societies the the wealthiest and most uh uh socially Progressive uh and successful societies You could argue that we're sort of moving out of that era of materially determined suffering and into an you know up view levels in sort of mesos hierarchy if you want to think in those terms sort of deal and that people still suffer but they're not suffering because they don't have enough food to eat they're suffering from for for social and psychological and existential reasons okay so but at any rate material Prosperity sort of points in One Direction as a proxy to Something That We're that I guess we really truly deeply care about which is human well-being okay on the other hand from the other direction um productivity production consumption
income these things that are actually that you can that one could hope reasonably to quantify um as in the formula for the GDP in Australia um uh that those are themselves those are a proxy or or or at least a close correlation or somehow um a a reasonable reflection of material Prosperity so material Prosperity is a proxy for human well-being but material Prosperity itself is um uh is is is is is the um is something that we're determining by you know these these by measuring these other things and we can't measure material Prosperity directly so we have to measure other things and infer from there from those others um uh things producing consuming you know people reporting income on their taxes and these other imperfect uh things or these other phenomena that we can measure only imperfectly we infer from them as uh we usually use them as proxies for material prosperity and events for material Prosperity as a further proxy to human well-being that's how I see it and so what we would would then so we got this sort of chain of abstraction these layers of abstraction that that that that um separate what we can measure or what we can quantify what we can actually evaluate um uh from what we actually from what we truly care about so there's quite a bit of Separation there and then so the question that I would ask uh with that is okay um uh are are we are is that is is GDP actually continuing to succeed in measuring material Prosperity by evaluating what what's produced what's consumed what's reported as income and so forth that's my first question and if not what would the erosion of that look like what would we expect to see if that were devolving um and so that's my that's sort of the first sub question number one and then the second sub question sorry go ahead yeah so in that question so the question was is GDP any longer a good measurement of prosperity which you just distinguished from something like well-being so this kind of like this problem of maybe what we actually care about is well-being something we can measure is prosperity and then there's even a third layer which is GDP which may fail to measure prosperity and independently Prosperity may fail to really measure well-being is that an accurate summary or that is strictly speaking only the aerial arrows only go from one level to the next for example I think we could be confounded I think there's potential to be confounded that GDP could cease for example could cease to reflect material Prosperity but
could still continue to be a decent proxy for well-being weak or or even become a better proxy so one could imagine sort of counter-intuitive uh uh you know sort of compounds like that right um and so that's why I'm kind of interested in separating it out a little bit is is you know we we could if this whole thing breaks down um we could just start completely fooling ourselves just you know and and but it could be it could be quite quite unintuitive ways right so if if well-being uh after having satisfied material Prosperity is primarily determined by you know sort of the social uh and and very much Social and Psychological Services that you receive out of the economy say for example entertainment or something like that um uh I don't know we could think about that in Greater detail one can imagine that even if GDP you know ceases to really about to to reflect material and I use material Prosperity deliberately here if even if GDP ceases to reflect material Prosperity it could it could if it continues to reflect other things traded in markets um maybe that could make it a better uh indicator of of well-being um uh you know if we eliminate material Prosperity as a constraint on the system so I I see it as a little bit more potentially a little bit more more subtle than just you know the leaks in a chain I think it could there could be sort of a um uh you know more of a causal web here um a simple one obviously would just but but I'm not I I I don't want to yeah I don't wanna like over complicate things unnecessarily and just want to you know be cautious about about making it a little bit too simple and linear that's all yeah this came up last time but maybe before getting into examples and I actually have one in mind that I want to run past here um it does seem to be relevant the role GDP well this GDP and there's also GDP growth right uh which I both figures that get banded around and probably usually it's GDP growth that you talk about right so politicians you know you know everybody has sort of seen some report where the GDP growth for China was estimated or the us and we talk about recessions and it's it's often the growth number that's quoted it's I think most people would probably have to look up on Google what the GDP of America or Australia was right um as a number because that's much less common it's very um very uncommon that you'd hear someone say the GDP of Australia is 1.6 trillion US dollars or something that's not a number that people mention uh it's rate of change yeah it's
it's an exponential so it's the um it's the percentage change uh over the previous year so so GDP growth would be listed as four percent if there's a four percent growth in the GDP from you n to year n plus one yeah and the presumption there I mean that's why if you if you maintain the GDP growth of two percent but the rate is constant but that means exponential increase in GDP which roughly speaking we have seen in many places over the last few hundred years um but yeah I do I do think it's it is a difference right because uh okay maybe I'll just give the example this I I can't think of very clear examples that are directly linked to technological disruption although maybe maybe this one is in some way well okay it clearly is so fertility in the fertility crisis in many places seems to me like one of the key examples of the failure of GDP is a measure of future well-being maybe it's more about the the longer run trajectory but to use the example of China as I've done in the past so China's had very high GDP growth over the last few decades and I've been lucky enough to be in China several times uh to see firsthand what that what that feels like for people but now they're in a situation where um due to that a lot of policies that incentivize GDP growth directly uh both parents often work they often have very competitive careers people feel they have to work very hard to maintain a middle-class lifestyle and to ensure one for their child child care costs are high the medical insurance system is weak people have to support their parents all of that means that people work very hard and are quite stressed and feel even to a greater extent than maybe people in Australia or Rich Western countries do that one child is about all they can manage and so the government is desperate like absolutely desperate to get people to have more kids but basically there's this very widespread phenomenon where the government basically wants to go to each individual woman and say okay make a trade-off which says less career and more kids for the sake of the country and a lot of women are just saying no thanks are not going to be you know basically signing up to be uh well okay there's social issues we don't need to get into but um now from a long run point of view right the well-being of people over many decades it would be completely rational to spend much higher percentages of GDP to encourage population growth right to put in place policies and and so on that would allow people to
make these choices not be coerced into them and Japan is starting to do that it's kind of weak Source still but China's like madly rushing headlong into that kind of policy Direction but this strikes me as an example of okay why would GDP fail to capture the relevant Trends here well it's because a lot of the the value produced by women when they uh by either gender when they're raising children but often that's in modern world women who are putting in most of the time so I'll just say women the the child rearing time is is not like directly valued somehow it's not it's not coming into any of those three categories except in so far as you buy diapers and milk formula and so on but that that number doesn't really show up in the GDP so it's not directly optimized when you just focus on the GDP and uh in the end that it's a kind of like the long run optimization of GDP you'd actually invest in human capital to an extraordinary degree and in particular in supporting women to make the choice to have more children or families yeah so that I mean the fertility issue seems to me like an example of where this has failed uh you can say this technological disruption because it was of course the contraceptive pill that allowed this situation to exist but yeah I don't know if you have any thoughts on that example yeah it's a great example um I will run it by my um I'll write it by my colleague Brad as well he's just getting ready to publish a uh a piece a short piece on our um blog website uh that mentions the birth control pill and some of the history of disruption that led to it it's got a there's a birth control pill um and more specifically the development of the technology to synthesize uh hormones in general um is related to just by Quirk of History the uh disruption of the fountain pen by ballpoint pens and um that's the connection there technological disruption it's it's only a quirk of History it's not a direct like causal connection it's just that the the individual person the entrepreneur who um who developed the ballpoint pen technology in the 1930s um and made his fortune that way then went on to spend that fortune developing uh synthetic hormone production technology and so he was instrumental sort of in two major uh well not major but in two different technology quite different technology disruptions You could argue that the ballpoint pen was a bigger disruption than you might imagine um it's not that other writing implements weren't available but it did
change the nature of of writing it's it's in in yeah anyway it's a it's a it should be a fun easy um uh series of blog posts to read and I think Brad's plan I think playing and Publishing starting next week so okay I'll I'll keep an eye out for those and it's um it is it is uh yeah the the birth control pill is certainly one of the most profound technological uh changes in human history there's no question about that it no matter how profound people say that it is it's it's almost impossible to overstate um how big of a deal it was um so yeah it's it's it certainly certainly uh I I think you're you're this example of the failure of GDP to capture um something that's very uh very relevant to not just not just well-being um uh but also productivity itself and the maximization the long-term maximization of productivity um and certainly if you were thinking like retrospectively I mean you you could you could you could come up with you know some some future scenarios where well you know we don't really need a bigger population to maximize productivity because we're gonna have automation but if you were to if you were to um you know either hold either exclude that from consideration or or perhaps you know imagine this conversation happening you know 30 40 50 years ago um in the context of the contraception contraceptive pill yeah you could absolutely see how um uh you know if failure to failure to capture failure to measure the um productive contribution of child rearing in any long-term you know optimization decision making that evaluates productivity all production at all yeah that's a major you know this is a major shortcoming obviously so it's interesting very interesting point Dan it's going to attach a speaker because otherwise the the yellow errors that lead people up here aren't um aren't visible yeah thanks Chad for going to find Martin yeah that's right I mean of course there's a there's a kind of meta discussion which is maybe we don't think GDP is actually measuring the things that we want to measure and that's fine but I think what we're saying now is even on its own terms the failure to measure the sort of productive contribution of of child rearing and even education uh as a as a kind of growth factor in and of itself is is a is a failure which leads to policy which shoots yourself in the foot and okay so given that example yeah go ahead oh I was going to say the the um the the original motivation for for for for for asking this question do we see hints
already was about um the technology that sort of decouples um well that's not the right way to say it um uh oh well partly it is so it's the the the the another example to think about would be the uh ephemeralization or the dematerialization of um of what war wants physical Goods into digital uh Goods so what were once physical information Goods like uh copies of newspapers and um physical recordings of music and video film and video and so forth having you know the the digital the revolution um I I we I I my team is not published on this so I don't have a sort of a firm formal um uh vocabulary that I'm committed to using so I'm going to be kind of sloppy and loose with it but we there's the the combination of computers and networking technology and other information Technologies you know the sense sensors the CCD uh sensors for digital imaging and and you know all sorts of software and everything from compression codex to you know all kinds of a whole Suite of technologies that are associated with computers Computing telecommunications networking um uh that culminated in the you know the the uh wide availability of computation and the the broader phenomenon of the internet you know we put all of those things together we have a we have a very large number I think of of um examples of products not just services but products physical products that were once sold in retail outlets to end users and of course were you know other even more other others that were sold uh between businesses so business to business transactions um products those have those have uh effectively disappeared from the three pieces of GDP that for example the Australian um is it this did you say it was the the Central Bank the the would that is it that is that right that I mean so um like like the I think the example I used before were the the pictures that you take with your phone it's because you no longer have to develop them uh you no longer have to pay for them as individual products they are you know they are they that has disappeared whatever that was worth it's gone from GDP and uh this is somewhat ironic or paradoxical depending how you want to look at it because we are producing so many more pictures than we ever did I think we are guessing somewhere between 100 and 1 000 times more um images uh than we ever did even at the very Peak with film cameras and so that's just one one example so the so the the then the question would be is can that continue in in any kind of continent Trend continue in any sort of
uh steady uh uh sense um will other things be sort of digitalized or dematerialized in that same way one could imagine an endpoint where you sort of have a Star Trek replicator 3D printing sort of Technology where anything any material object could be printed out in the same you know um in any quantity with a negligible marginal cost and in the same way that you know you can copy and and produce and and do whatever with with digital files can you explain it sorry so I was all all I was uh wondering um I guess is from those examples can we imagine any uh any any further so I guess if that's happened has that has that eroded GDP in any meaningful way already by removing you know some number of products from what GDP measures um even though we're still we as a society as a civilization are still getting the benefit of that prosperity of that production and then and then what do these sort of intervening steps from here looking forward to some some conceivable you know um future where where all the rest of the remaining physical uh trade is eliminated and uh none of that is left and and maybe there are remaining you know say for example service markets for services but markets for physical products are are largely gone are almost entirely gone except for a few tiny niches that are left or something like that and so what would that do we see any hints that we're doing this already and what would that look like yeah that's the um I mean that's my overarching curiosity here yeah I wonder if I don't agree with the premise I don't think physical versus digital is that really the relevant distinction I mean let's talk through the example of CD sales and music and and the modern music economy is well how did people make money from music in 2000 or you know 1990 all those through CD sales licensing for movies and TV shows and uh gigs I guess mostly right uh and maybe it was always the case that licensing for TV shows and movies was I don't know the relative proportions but that's a lot bigger than people think so Lucas uh that's the that's his territory right and there is a lot of money in the the kind of background music that you hear in Survivor or uh whatever TV show you want to watch that that varies it's music from episode to episode that's an enormous Market not to be underestimated but uh okay so those are the kind of ways that people made money from music before Napster now there was a period there where the digital form was just a pure loss and like just completely invisible
economically right I mean you had to pay for internet access but Napster really wasn't I don't think anything to do with naps would show up in in economic figures you can make the argument that people downloaded a lot of musicians music that they they wouldn't have listened to otherwise and then became fans and went out and bought their CDs but overall I think it was just a net drain on measurable economic activity then you had the mute the apples um the music store and that was a kind of model for a while and now it seems like most of the economic activities in terms of paid listening to music is is subscription-based um but you could say That's A disruption but I'm pretty sure that the figures for the revenue from streaming are significantly lower now even though the market is probably much bigger than than CD sales were back before all this started so it's it's in some sense just a story of decline uh okay now in that case it's not is it really the the fact I mean is it really physical versus digital or is it I mean the fact that we're now in a model where it's not the marginal cost the marginal cost of music is zero but it's a different economic model right it's streaming or if you're paying for individual songs which I still do uh you're still paying for a copy of the song is it as it's foreign and in my team's work we're quite careful to never say zero marginal cost we just say near zero or extremely low but in it it is it's literally zero is is um rare you have to have sort of unusual market conditions uh you know and in particular kind of quirky or perverse uh uh um things going on on the supply side I think I mentioned negative pricing for electricity under certain uh circumstances um you do get things like that but that doesn't mean that the the true cost is um in in sort of any physical terms is zero it's just very very low and I think the way that I think about it is that at some point the the the unit cost and marginal cost is part of that um but you know there are other things that go into the cost of a unit of something um but say for example the unit of uh music or we could you know do a unit of of um Imaging uh at some point the cost becomes so low very very low that um it doesn't it doesn't it doesn't pay to engage in traditional per unit Market transactions so markets that that that trade those individual units and instead we've seen new markets with different business models emerge like streaming where you it you don't pay for I mean and this is and people
people have disagree with this whole premise this whole idea this whole phenomenon they're big proponents of microtransactions um where the increments of of you know currency that you're using to purchase are just tiny tiny tiny I mean still would still would support a proper you know proper per unit Market um trades but instead most business models that we've seen were that have had you know the price fall banishingly low per unit of whatever um they switch to uh a subscription you know you pay for you pay a service charge you pay you pay an access charge you know you pay you just pay your ISP then that gets you on the internet you just pay your streaming service and that gets you all you know it gives you all you can eat buffet kind of thing um uh in fact I haven't hadn't even thought of you all you can Buffet but maybe that's it to think about that um but that's that's basically in my mind that was the it was the distinction is that when things become extremely inexpensive um because of improvements in technology they seem to be you you you you uh uh they seem to show up differently in GDP and and um and and the what you what you what you would expect is is not what we see so if if a technology allows you to produce thousands of times more of something like thousands of times more images then you naively you might expect well GDP would be thousands of times higher at least that portion of it and then material Prosperity would be thousands of High Times Higher uh in that in that particular way and then that would you know have this massive impact on well-being and I don't think we see any of that right the the uh the it it I I think one could argue that the material Prosperity gains are there but they are both not necessarily reflected in in the GDP as a metric and then perhaps on the other side um you know maybe maybe all that material Prosperity doesn't translate very well into human well-being and then you've got a whole other Camp of folks who are focused on that that issue that particular problem that stuff doesn't make us happier Beyond a certain point which is you know which is I think but a well-supported claim psychologically um but uh uh I'm not so much interested in that I'm familiar with some of those lines of reasoning but that might think my thing that I'm most interested in is is this is is this Paradox of of increasing material Prosperity um that doesn't you know it it doesn't seem to be captured very well in GDP and that doesn't seem to be appreciated very
well how do you think about the example of the example of artificial light so that seems like the one of the clearest cases of this kind of phenomenon right where yeah that's a good one that's a really good one the people must I don't know what percentage of GDP was buying candles but it must have been pretty enormous uh yeah yeah it was yeah and then they went to near zero I guess now that you could say that enabled that freed up many hours per day for people to relax but also to work it lengthened the work day and uh and made possible working in factories that would have been kind of Intolerable without artificial light so there's a kind of a direct way in which it increased economic output in other places and which compensated for the loss in economic output that would have been measured by simply buying selling and Manufacturing candles or oil or whatever gas lanterns um okay uh yeah maybe I'm thinking electrification but I suppose it happened in two stages didn't it there was gaslighting and then electrifications um yeah but putting lumping those together perhaps um so these these disruptions enable all sorts of other economic activity but it's uh maybe there's a significant lag right where there's a kind of phase transition maybe where the kind of world that exists with very expensive artificial light just as different to the world that exists with very cheap artificial light uh and like the configuration of everything shifts and there's a period I mean this is typical of phase transitions where when you're actually going through the phase transition key indicators may just remain constant even though a lot is happening because the system's kind of being reconfigured right so maybe that's probably just as much true of economies as it is of physical systems where you could imagine GDP kind of tracks it's kind of like a temperature measure maybe right where you you know that's kind of like the temperature is going up there's more activity but then you could you could see a phase where the just the configuration of the economy is changing and it doesn't seem like the temperature goes up like the GDP may not change but behind the scenes you're maintaining a given GDP level while completely changing the system that produces it and when you come out the other side that new system is just capable of operating at maybe an order of magnitude higher level and then you can continue to grow again so maybe that's the kind of thing we're looking at where it's not like maybe we
think GDP will fail long term to be a useful measure because you know GDP uh continue to be useful or was you know maybe only started to be tracked diligently after the transition to artificial light but you could imagine that if you had the economic data beforehand you know people would have been using it would have been caring about it and they did afterwards but you can you can easily imagine that during some of these transitions it wouldn't be so useful exactly because what you instead the the measure of progress is really something like a shift in the operating system well it's funny Dan you're using exact language and metaphors phase change in particular that um my two colleagues Tony and Jamie that they use literally verbatim that's their a big portion of their model that's in their book their their um the book that they wrote where you thinking Humanity has which is is very much theorizes that same that same sort of uh right along the same lines there are things about that that are I mean anyway it's they have an interesting uh theoretical framework um uh and it and it it makes use of a number of the same ideas and um metaphors or analogies whatever is a better term um that you're just invoked so yeah they're they're thinking is right along those lines and I think there's there's I think there is a lot to be said for that um uh and and a couple of two things in particular jump out to me one thing definitely um so let me let me just build on that real quickly um and and circle back to an earlier idea from a previous session that we had as well so you mentioned that that we've got this this sort of um the potential at least for what could be going on is is uh uh a a change in the structure of production itself such that the the the expansion the growth of construction can continue of production rather not construction of production can continue so you know GDP grows up to a certain point and then you have this metaphor of a of a phase change the the there's a reconfiguration and and this is part of what enables uh the the the GDP growth to continue and one could one could say economic growth as well I think we might be run into some problems there I'll get i'll get to there in just a second I'll connect to that idea in just a second but for right now this sounds very much like the sort of the the um it sounds very similar to me to what I've heard folks like Ray Kurzweil describe which is just about technology in general which is that you know one technology one technology one particular
technological change or regime that that does follow an S curve um enables subsequent ones and so the the overarching or I should say the overlapping uh instances or of individual s-curve phenomena when you when you when you sort of sum a whole bunch of s-curves and they keep coming and keep coming the the overarching result is is just an exponential that keeps going um and so this is this is very much a kind of a that it reminds me very much of that kind of thinking right um uh okay so let me loop back around and connect to this idea from a couple of weeks ago which is that um GDP as a measure is is it's it's a it's an indication of that which is scarce um and that which is traded and print and those are connected perhaps in that that which is scarce enough to be traded and things that are abundant are not traded because they're they're you know we simply don't do that economies as we understand them are about the allocation of scarce resources the The Exchange and the trading to optimize the distribution of things um between different agents with different you know sense of priorities and and goals and values and so forth um but but when you reduce all that you get to something like um you know their scarcity and uh trade accordingly and GDP is some sort of reflection of that scarcity and the trade around it and so the the the I guess this is and that's that's how I originally you know sort of um stumbled politely and backwards into this whole mess that we're talking about here which is well if we're becoming more and more abundant um or you know with productivity is growing and and things in general becoming more abundant then what is GDP what is it left what does it have left to do that's a pretty product and commodity focused statement though right I mean it's already true that a majority of the GDP in the US and Australia is made up of services and right right would you say exactly that like it's not like uh scissors that hairdressers use are scarce uh the value from a hairdresser is not because they have a scarce resource that you're buying access to right it's right it's the service and I suppose you could say that's scarce and it is because there's you know not infinitely many people who can cut your hair although there it's probably the true scarcity is more like real estate rather than people uh so this the scarcity I'm glad to hear that Martin the scarcity is yeah you know we have a lot of rising prices in particularly dense urban areas that are to do more with people's desire
to congregate than to any scarce resource particularly you could say it's real estate but there's also like even if real estate were relatively abundant well yeah I guess the true scarce resource there is is just real estate but it's also like job opportunities and network effects that are in some sense non-physical already so yeah let me put forward a kind of counter point which is that suppose everything becomes digital I mean here we are right we are talking in a virtual world talking about real estate and congregating yeah do you imagine that like the the scarcity of positions in Harvard or like access to the best teachers would just disappear the moment you make it digital I doubt it in fact it would become worse I would predict I mean suppose that every University is online and doing this then well the best teachers in the world will be competed for by every single student on Earth do you think that it's not that the the difference I mean the true scarce resources are going to be and have always been to some extent Talent context and networks and positions in Networks that's the reason why the cost of higher education in the US just keeps going up and up while a lot of other resources become relatively cheap and abundant and that's not a physical world phenomenon I don't think it's not because Harvard doesn't have enough space on their campus that's not the constraint there so I'm not sure that I think I would predict that economic value shifts to a extraordinary degree over the next few decades to that kind of scarcity and that is a not easy to see that that goes away because it's it's always a matter of relative position right even if the economy even if we have suppose we get AGI and we've got exponentially increasing economic growth uh like even the the growth rate is increasing exponentially so it's five percent then 10 then 20 percent well there'll still be a frontier and there'll still be a center and there'll still be places where it's much more valuable to be than other places and those the entry points to those places will be the most valuable resources on Earth so I don't think it's accurate to sort of see like it's just a general abundance as removing almost everything from the economy it will I think these phenomena will persist I find that very persuasive um and if if it were true I hope it is that would be great it would be nice and clean and elegant if it were true but if what you were saying is true um and uh GDP will simply continue to work
and it will simply shift from measuring physical stuff that's produced that was scarce in the past to uh services that continue to be scarce and it doesn't really matter I mean the physical basis the substrate just gets cheaper and cheaper and cheaper until it just sort of disappears into the background um that's great and you you the conclusion there is well it probably will be some sort of um uh natural uh uh continuity to to GDP and its usefulness and in some ways we kind of see this already I mean it it it i i i i in fact I I hope you're the answer I hope that the answer to the whole question here is as simple as that it would be beautiful if it was and now I sort of if I cast my eyes back and asked well what could it be that simple and then I'm going to say well let's test that and if if your hypothesis in 19 in the 1980s were that that would be the case and you're in 19 1980s and there hasn't been this massive digitalization yet and your argument is well they're going to be these huge disruptions of what are today physical products and you know and they're going to be replaced by services but there's going to be an emergence of of you know a service-based economy and things that you can't even imagine our services or will become ones like you know YouTube influencer or whatever else that people will pay for and they and you're not going to believe it but GDP will just keep cranking along and it won't even get knocked around or shocked all that much it it'll just it'll just you know nicely and smoothly navigate over the bumps of this of this of this massive structural change to civilization and economies and you're not going to believe what the internet is going to do to the world but you know GDP is just going to cruise smooth his silk right over that with not any more than the regular very variation and I you know if if you had told me that in 1980 I would have thought that was an unlikely you know I thought ma'am up well that seems isn't it isn't that a little bit too convenient um but you know adaptive it's this phenomena that sort of seek you know contractor basins and and you know points of homeostasis you know they they kind of have a way of doing that and maybe this is an example of that where where um yeah despite these sort of underlying structural changes that could be profound we will simply just continue measuring um things with this tool and it will seem quite smooth and and and and uh you know not Rocky and crazy and you know bouncing all around
um and we'll just regressively less and less be interested in in physical stuff and more and more be interested in in that which does remain scarce and which will increasingly I suppose be a a a a uh you know an unimaginably broad plethora of services and and and that sort of stuff that sort of thing and then allowing for like you said a handful of things that are physical that remain fundamentally scarce like you know real estate it does matter though whether these these services are it's I mean I mean where the access to these high points of strategic utility uh which I think describes an undergraduate position at Harvard pretty well uh whether access to those is exchanged at some point for more easily measurable quantities right so as it stands Okay so you're a parent and you you work your whole life selling pancakes and then your bank account full of pancake money is then you know emptied in order to secure 30 minutes of education at Harvard uh well that that showed up in the GDP figures with the pancakes right um even if Harvard itself is not but that that could change right and actually I'd be interested to study like an economic history of aristocratic era where there would have been a lot of economic value so to speak exchanged simply by relative status among the aristocracy and access to rents right where you could imagine you know giving out giving out a position like Earl of Sussex or something is uh you know an access to certain economic rents but the that's traded for something but that something is invisible economically red yeah so maybe there's there's earlier periods of History where GDP would have been much less useful because it's not that there are lots of transactions and activity that just simply never cash out in expenditure income or production yeah and we mentioned this I think last week or the week before too the the the you know you mentioned the idea of informal economies black markets gray markets that are not visible to these measures either and we did what we didn't do is sort of discuss their relative proportion like how how large are they relative to the formal economy and how has that changed over the course of history I think that's part of what you're getting at here and then how might that continue to change in the future um because you can easily imagine that a future economy looks more feudal and I would say that's my modal prediction really where you've got some kind of sovereigns that have access to very advanced Ai and you know we could name some of
the candidates right now and then you know your your access to economic job opportunities is sort of proportional to the degree to which they they deign to you know sort of reflect some of their light onto you right and uh you can see some of that already and in the way that some of these fortunes that I say made from cryptocurrency are used to support various ventures of you know this kind of a patronage economy in science that's re-emerging along those kinds of lines and which I think will become more prominent over time so you can imagine that within that I mean if that's the way we're going uh then a lot of that activity will yeah you could call it gray Market I suppose but it'll be sort of internal to this yeah kind of Quasi feudal Arrangement and maybe maybe that's a reason to think the opposite that GDP will in fact not become a useful measure and we've reached the end of our time but do you have any final comments you want to make we can continue next week obviously question three or the remaining topics in question two yeah uh this is great I I think I'll leave it I have some thoughts I'll try not to forget I'm but I am interested in returning to this idea of you know what and it's maybe broadens to a larger discussion about what does a future with with technologically enabled material abundance look like and we can't go that far out you know I think we need to maintain some discipline it it I think it does you know we I appreciate the metaphor of the singularity I fundamentally do the the way that that manifests in my own thinking most firmly is that is that I do not do uh any formal analysis or scenarios out past a certain timeline because they think I I think that they're just they're kind of Reckless and irresponsible um what do you mean like 2028 yeah that's the thing is it's frightening how much uh closer that's gotten and I'm having to rethink things a little bit here as a result of that but um so I don't want to you know necessarily take us down too far of um of the conjecture rabbit hole if we're past that Horizon um but uh I think there are some fun things to talk about you know what could the intervening stages B and that's sort of the you know the thing that I'm most interested uh fought this specific question about GDP like what you know could we see this happening and what might happen in the near what might that look like in the near term as we sort of are moving from one or we're sort of progressing through some phase shift um and uh the same for just more broadly