Sup y’all. (I have no idea why I started with that…it just felt right so we’re gonna go with okay…)

Hope everyone’s September has gotten off to an amazing start. For me it’s been an odd mix of peace and quiet and crazy…sooooo I’m just trying to balance that all out. I’ve started writing an in-memoriam for a very close friend and Vol. 1 Ventures founder who we lost earlier this summer. I want to share his spirit and journey with everyone because he meant so much to me personally, but also because his death has been critical to me re-evaluating my life, habits, and personal/professional goals. However, writing about someone who’s gone never gets easier. I want to give my friend all the respect and love that he deserves so when it’s done I’ll share with y’all…but right now writing it has been super hard so it might take awhile.

Also, I just did my quarterly productivity check-in with myself (and my good friend Henry Ault…Henry is basically my productivity coach at this point so "Hi Henry!”) this past week and didn’t love how hard it’s been to get back into the swing of things this fall. My sleep has been a lil’ messed up since I had to take an emergency trip to Asia for family things and getting back to my normal circadian rhythm has just been…a struggle to say the least. Like please send help bad. We’re also in the midst of a super busy time for raising at Vol.1 Ventures so me being at 100% is mission-critical. I’m going to try out a few new AI tools to see if they help so look for a future review here. If you are using some great tools, let me know and if you’d like to request one for me to try and review here, let me know too. Happy to share where this quarter’s productivity goes with y’all!

שנה טובה

Okay, sooooo I’m also taking Rosh Hashanah very seriously this year. My very conservative Jewish paternal side is finally rejoicing over a life choice. The past few years have been a real struggle personally and professionally so I’m looking forward to getting things back on track and seeing where this year’s journey goes. I’m spending a few days getting my house in order for the upcoming year and prepping for the year ahead! Let me know if y’all have any Rosh Hashanah or New Year’s traditions I should try as well.

Things You Should Know About So You Sound Smart…

A few days ago The New Yorker published an article entitled "The Lies in Your Grocery Store. As many of you know I am a haaaarsh critic of food labeling regulations in the United States and turns out I’m not the only one.

This article discusses the myriad of ways in which processed food companies use misleading marketing tactics to convince consumers that their products are healthy. The article focuses on the work of Spencer Sheehan, a lawyer who has filed multiple lawsuits against these companies. I know, of course a lawyer started all this…I wish I had a different start to this spiel lol.

Sheehan argues that companies like Kraft Heinz and Coca-Cola are using terms like "natural," "healthy," and "whole grain" to describe their products, even though these terms are often meaningless or even misleading. For example, many products that are labeled "natural" contain artificial ingredients, and many products that are labeled "whole grain" contain refined grains. Don’t even begin to get me started on how dairy-alternative products are labeled. Just. Don’t. Save Yourself.

Sheehan's lawsuits have been successful in some cases, but he has also faced opposition from the food industry and from some consumer groups. Some people argue that Sheehan's lawsuits are frivolous (which in all fairness they may be…but he also is making a really good point in doing so…) and that they are simply trying to make a profit. Others argue that the food industry is already subject to enough regulation (Big Truth.)and that Sheehan's lawsuits are unnecessary.

Despite the obvious opposition, Sheehan continues to file lawsuits against processed food companies. He believes that these companies are misleading consumers and that they need to be held accountable. I don’t expect to see less of these suits, I think more and more are on the way.

We need to consider the broader implications of Sheehan's work. The author, Elizabeth Kolbert, argues that Sheehan's lawsuits are part of a larger trend of consumers becoming more aware of the ways in which they are being manipulated by food companies. Which is a huge deal for new companies trying to figure out how to get their food and beverage products into the hands of consumers. The bar is getting higher and higher for consumer trust when it comes to what we’re putting in our bodies. Kolbert suggests that this trend could lead to changes in the way that food is marketed and regulated. If I’m a founder or investor in the food and beverage industry…or if I eat…I’m paying attention to what happens now that the spotlight is on cases like these

AI: A Modern Use Case of Economics

I know I’ve talked about this for a few weeks here and on social media, but I’m deeeeeeep in Economist Stevie mode while I write an economics manifesto for Vol. 1 Ventures’ Limited Partners. I love doing deep dives on economics every now and again since I have a little-used PhD in Economics. (It used to get some use but now I just get called out for going into “nerd mode” by folks when I start down the familiar Keynesian path.) However, writing on the economics behind how we make venture capital investing decisions at the fund has made me think a lot about how those economics have wider applications, and how tech-driven innovations are shaping our economy for years to come.

I ended up going down the rabbit hole on AI and economics one evening when I was trying to figure out how all these AI startups coming out could actually work and be valuable companies worth their sky-high valuations. Turns out there is a loooooot we should know about the economics of AI before we start making ignoble bets in the space. Yes, AI has taken over the zeitgeist as of late. It is an unavoidable part of everything happening in the arena now. However, what AI means to the economy and the forces that move our economy remains hotly debated. Without thinking about how these economics play out, we are making bets blind as investors.

So what should we know about AI and economics?

For some, like the International Monetary Fund, AI should be looked at through the lens of Adam Smith. I think it’s crazy to see the IMF look in Smith’s direction with AI, but alas…here we are.

Adam Smith's economic theories are based on the idea that free markets are the most efficient way to organize an economy. He argued that when individuals are free to pursue their own self-interest, it leads to the greatest good for society as a whole. This is known as the "invisible hand" theory.

If we look at the economics of AI through Adam Smith's theories, you see that AI has the potential to increase economic growth and prosperity for everyone. We like this! By automating tasks and improving productivity, AI can free up workers to focus on more creative and strategic work. This can lead to new industries and new products and services. Now that we’re all using ChatGPT to do our jobs, what are you spending your free time on?

AI can also help to reduce costs and improve quality, which can benefit both consumers and businesses. For example, AI-powered chatbots can provide customer service 24/7 at a fraction of the cost of human employees. AI can also be used to develop new drugs and medical treatments and to improve the efficiency of our transportation and energy systems (that’s if our regulatory systems can get with the technical era of today.)

However, there are also some potential challenges associated with the adoption of AI under the Smith microscope. One is that AI could be used to create new forms of monopoly power, if a small number of companies are able to control access to the most advanced AI technologies. That would be veeeeery bad for everyone.

Overall, the economics of AI is a complex issue. However, it is clear that AI has the potential to have a major impact on the global economy. It is important to start thinking about how we can manage the adoption of AI in a way that maximizes the benefits and minimizes the risks.

WWAGD?

One of my favorite economists (yes, I have a favorite economist…) is Avi Goldfarb. Goldfarb has done some excellent work on AI and how it will disrupt the worldwide economies as we know them. He isn’t a classical economist in the same style as Smith, and I find him to be well-versed on technological advances, which means he’s a powerful voice in the economy these days.

Goldfarb, along with Ajay Agrawal and Joshua Gans, co-authored the beyond-excellent book Prediction Machines: The Simple Economics of Artificial Intelligence. I highly recommend everyone investing in or building in AI take a look at this very important book. When you dive into his work and writings you learn a few important things that are driving AI’s impact on the economy in new and unique ways that we’ve never seen before.

AI as a Drop in the Cost of Prediction

We need to start framing AI as a technology that significantly reduces the cost of prediction. Just as computers drastically lowered the cost of arithmetic, AI is doing the same for making predictions based on data, particularly when it comes to machine learning. The mind cannot even fathom all the ways a lower cost of prediction can turn the world into a productive, well-oiled machine.

New Economic Shifts

The reduction in the cost of prediction will naturally shift the economic value from skills and tasks that were traditionally prediction-heavy, to those that aren't. This will cause a reallocation of jobs and a need for new skills. Every time we talk about the reallocation of jobs I think about how our educational institutions can start training folks for the jobs of the future versus the jobs of yesterday. We already have a misallocation of human capital, so I don’t think the age of AI will be any different—if anything, it could widen the gap. Time to settle in for more unrest and chaos due to misallocated resources…

Complementary Tasks

As AI improves in prediction tasks, the value of complementary tasks like judgment, data collection, and action will increase. For instance, if AI can predict a medical diagnosis based on symptoms, the human role might shift to deciding the best course of treatment considering the emotional and holistic needs of a patient. I continue to see a lot of value in AI use within healthcare…again as long as medical education and healthcare administration can keep up with changing technologies and be open to how they can help drive better care.

Importance of Data

I hope this is pretty obvious, but in case it’s not…let’s talk about it. Basically, the more data you have, the better your AI's predictions can be. However, this also raises concerns about privacy, data monopolies, and competition. In terms of regulatory and compliance, this is obviously where we should expect to see the biggest issues. I expect to see major litigation start making waves soon, which is why we’ve already recommended to most AI companies that they start lobbying, like yesterday.

Economic Inequality

There's potential for AI to exacerbate economic inequalities, especially if AI-driven productivity gains are captured by a small segment of the population. Moreover, if AI displaces certain jobs faster than it creates new ones, it could lead to labor market imbalances. This is the biggest concern for the critics of AI after privacy from what I’ve seen on Capitol Hill.

Regulation and Policy Incoming

It’s my belief that instead of focusing solely on regulating the technology, lawmakers should consider policies that help society adapt to its effects, such as education and retraining programs, and measures to promote competition and prevent data monopolies. By using proactive lobbying we can help mitigate the risks of AI quite easily. However, the dam has already started to break…

Judicial Actions

In the United States, there are a number of lawsuits pending that raise AI-related issues. For example, in one case, a plaintiff is suing Amazon, alleging that the company's AI-powered facial recognition system was used to falsely identify him as a suspect in a crime. In another case, a group of plaintiffs is suing IBM, alleging that the company's AI-powered hiring system is biased against African Americans.

In the European Union, the European Commission is investigating whether Google's use of AI in its search results is anti-competitive. The Commission is also deeply considering developing new regulations to govern AI.

Political Bills

In the United States, a number of bills have already been introduced in Congress that would regulate AI. For example, the Algorithmic Accountability Act of 2022 would require companies to conduct impact assessments of their AI systems to identify and mitigate potential risks. The AI for the People Act of 2022 would establish a new federal agency to oversee the development and deployment of AI.

In the European Union, the European Commission has proposed a new AI regulation that would impose a range of requirements on companies that develop and use AI systems. The regulation would classify AI systems into different risk categories and impose stricter requirements on higher-risk systems.

As AI continues to develop and be used more widely, we can expect to see even more legal and regulatory activity in this area. In addition to the above, the White House released a Blueprint for an AI Bill of Rights in May 2022. This document outlines a number of principles that should guide the development and use of AI, including the principles of fairness, accountability, privacy, transparency, and safety. The Biden administration has also called for Congress to pass legislation that would implement these principles.

Long-term Impact

In the long run, Goldfarb’s theories specifically suggest that the economy will adjust to the changes brought about by AI, much like it has to past technological revolutions. The transition, however, might be challenging and needs to be managed carefully.

Goldfarb's insights also highlight the multidimensional impact of AI on the economy. Yes, there are immense benefits and efficiencies to be gained, but there are also potential pitfalls and challenges that need to be navigated. Proper policy responses and societal adaptability are key to harnessing AI's potential while mitigating its negative impacts.

I think for AI to have the positive benefits far outweigh the negatives we must start considering the valuations these companies have reached. If AI companies are trying to reach astronomical numbers, we can expect more catastrophic mistakes and missteps. These will cost the industry dearly and will cause AI to not be able to live up to the numbers we’ve given them. And we need to remember that the more money that is being shoveled into AI, the more closely political figures will follow the industry…and that means more costly regulations.

What Could Go Wrong?

While Goldfarb and his co-authors offer a comprehensive framework for understanding AI's economic impacts, critics and other experts might point to several potential gaps or oversights in his assumptions:

Speed and Magnitude of Disruption

While many technological changes in the past eventually led to new jobs and a rebalancing of the economy, the speed and scale at which AI is advancing could mean more abrupt and widespread disruptions than previously seen. We’re raising the hackles of folks faster and faster and that isn’t necessarily a good thing.

Generalization of AI

The approach of viewing AI primarily as a "prediction machine" offers a simplified view. AI, especially in its advanced forms, might evolve beyond just prediction to include creativity, intuition, and other higher-order cognitive functions, reshaping its economic impact.

Global Implications

The global nature of AI development means that innovations can come from anywhere, and its impacts will be felt worldwide. Different economies might respond differently to AI-induced changes, leading to a diverse range of outcomes not covered in a one-size-fits-all analysis.

Socio-cultural Dimensions

The economic analysis might not fully account for socio-cultural impacts, such as changing human values, relationships, or the way we perceive work and purpose in an AI-dominated world. Basically, Spike Jonze may have been psychic when he made Her.

Ethical and Moral Implications

The ethical considerations of AI, from biased algorithms to surveillance implications, can have economic consequences, especially if they lead to regulations or backlash against AI deployments.

Environmental Considerations

The environmental costs of developing and deploying AI, especially energy-intensive models, might have economic implications as societies grapple with climate change and resource constraints. It’s still up in the air if climate change can actually be an effective economic driver, especially here in the United States.

Limits of Adaptability

Assuming that the labor market and education systems will adapt might be overly optimistic. Institutional inertia, political challenges, or resource constraints might limit how fast societies can pivot in the face of AI-induced changes.

Unforeseen Technological Convergences

AI doesn't exist in isolation. Its convergence with other technologies like biotechnology, quantum computing, or augmented reality could lead to unforeseen economic scenarios. The unknown is always what gets ya.

Clearly, I’m firmly on Team Goldfarb, but I’d recommend folks also take a look at the European Parliament’s paper on the economic impact of AI here as well. I’ve found that the EU has taken a pretty labor-friendly approach to AI that will mirror a lot of beliefs around the United States.

When it comes to the cold, hard-dollar impacts of AI, McKinsey did an amazing job with their last report on how much AI will add to the economy…and where. I think when you have the right view of how AI can work best for our economy those dollar amounts start to make sense. And those valuations…actually look doable. Now the big challenge will be for companies to understand what they’re actually building and how to go to market without ruffling feathers and without a playbook from incumbents. Onwards and upwards into the great unknown y’all!

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