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- [00:02]
Ruby Jones
Cory Doctorow is the author and tech critic who brought us the term enshidification.
- [00:07]
Cory Doctorow
First, a company is good to its end users, then it locks them in. And then it is good to its business customers who then get locked in. And then it takes all the value for itself, leaving behind a giant pile of shit that is in shitification, a tragedy in three acts.
- [00:24]
Ruby Jones
Now, his warning that what we've been led to believe is the inevitable march of AI towards world domination is. Isn't that inevitable after all? And actually, what we're marching towards could be the end of the AI bubble. Because every time you ask ChatGPT, Claude, or Gemini a question, companies like OpenAI are losing money. The more we use, the more they lose. And while those AI giants burn through billions of dollars a year, gambling that eventually they'll figure out how to turn it into a profitable business, the world's economy is hanging in the balance.
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Commercial Announcer
Foreign
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Ruby Jones
I'm Ruby Jones and you're listening to 7am today, Cory Doctorow on why the AI boom is being pushed into every part of our lives and what happens when the bubble bursts. It's Tuesday, july 28th. Corey, welcome to 7am thanks for coming on the show.
- [01:30]
Cory Doctorow
Oh, well, thank you for having me on.
- [01:32]
Ruby Jones
So I thought we could begin by talking about some of the claims that are made around AI and its inevitability. The way it's sort of framed as this technology that has arrived, it's going to change the nature of work. It's going to fundamentally reshape life as we know it. So to begin with, tell me a bit about who's making these claims and why they are.
- [01:54]
Cory Doctorow
Well, I think that we've heard these claims before. We heard that cryptocurrency was going to replace all of our transactions, that the metaverse was going to replace the web, that NFTs were going to replace all art. We're talking about AI physics or AI biology for drug discovery, AI agents for customer service and support of diagnosis, and of course, physical AI robotic systems. This kind of claim to declare a fait accompli even before you got started is very powerful rhetorically. All of these AI capabilities that make you smarter, help you communicate better, improve your memory, improve your senses, and more. It's a way to exterminate any thought that things might be different before you can even start thinking about it.
- [02:42]
Ruby Jones
At anthropic, we talk a lot about the exponential, and I think that's what we're all feeling right now. The jumps keep getting bigger and the
- [02:51]
Cory Doctorow
intervals keep getting shorter and we hear it now from AI people who are desperately trying to explain how they can take a sector that grosses 50 billion American dollars a year and somehow turn it into a profit making venture. Despite the fact that they've spent more than a trillion dollars just this year, and despite the fact that every generation of it is less profitable than the previous generation, and despite the fact that they're having to replace all of their hardware every two to three years.
- [03:19]
Ruby Jones
Heard from OpenAI CEO Sam Altman with a fresh look at the company's financials. He says that they expect their annualized revenue run rate to top $20 billion this year. It was $13 billion before that and to grow to hundreds of billions by 2030. That's also a revision upward. Yeah. So this kind of talk, it's led to what many people have speculated is an AI bubble, that believing big tech when it talks about what AI can and will do. We' arrived at this place where we have vastly overestimated its value. So what is your view on whether AI is actually providing what it's promising? The productivity and profit?
- [03:58]
Cory Doctorow
Well, the productivity and profit are nowhere to be found in the world. You have some anecdote from individuals who say, well, I've used AI and made myself far more productive. But when you actually look at the firms that have deployed AI, what you find is that even with the massive subsidy the AI companies are offering, and the subsidies can't be overstated, basically at this point, AI companies are selling $100 bills at a dollar apiece. And even with that, you're not finding the productivity gains that firms were hoping for. We keep seeing firms that fire large numbers of workers and then have to try and hire them back. But even worse was about a month ago when the AI companies were all thinking about their IPOs and they said, well, let's clean up our balance sheets a little and raise the price of these hundred dollar bills to $5 a piece. And all of the CEOs, even the ones who'd been most enthusiastic about using AI, suddenly turned around and said, wait, your hundred dollar bills were barely worth it at a dollar each, but at $5 each, there's just no way we're going to be able to continue to buy these things. And they suddenly went from saying, you're going to get fired if you don't use AI to you're going to get fired if you keep using AI, at least in the way you've been using it so far.
- [05:13]
Ruby Jones
Yeah. So you're saying these companies, AI companies like OpenAI and Anthropic, they aren't actually making real profits. In fact, they're losing billions of dollars a year, yet the valuation of their stock is skyrocketing. So what is the impact of that?
- [05:29]
Cory Doctorow
Yeah, well, the shares in a firm that are growing are worth far more than the shares of a firm that is mature. And that's because a share is a claim on the future income of a company. So if you can imagine two companies, each of which turns over a million dollars this year, but one of which is expected to double in size next year, you could see why shares in that company that's doubling in size would be worth more than the shares in the company that are static. And when your shares enjoy what's called this high price to earnings ratio, when they're valued this highly, they become extremely liquid and you can use them in place of cash. And the advantage of shares over dollars is that shares are an endogenous product. They're made within the four walls of the company through the simple expedient of typing zeros into spreadsheets. And the corollary of this is that when you stop growing, when you become mature, which has to happen eventually, right? If you're Google with a 90% search market share, you're not going to grow your search market share anymore, right? And so when you cap out your growth, your company becomes grossly overvalued because it's been valued as a growth company, but now it's a mature company. And at that point you see these panic sell offs. This is why every time tech companies announce very small slowdowns in their growth or reversals, you get these mass sell offs. You know, Facebook had a $240 billion one day sell off in the first quarter of 2022 after announcing it had slightly fewer American signups than they'd anticipated. Is on Wall street this morning after shares of Facebook's parent company plunged yesterday.
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Commercial Announcer
Stock continuing to tumble this week after a disappointing report this quarter.
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Ruby Jones
Shares in Facebook now called meta, plunging 26% after results showed people are turning away from the social media platform.
- [07:13]
Cory Doctorow
It was the largest decapitalization of any firm in the history of markets until it happened again to Nvidia a couple of years later, this time to the tune of three quarters of a trillion dollars. But if you can't grow, well, the next best thing is to promise you're going to grow, right? To say, well, look, we're about to conquer a new imaginary market in NFTs or Web3. Or now that AI is getting a little Stale. It's super intelligence. And you know, all of these things benefit in part from having technical meanings that aren't well understood or even well defined. So you can claim that you're going to conquer a market that no one else understands. Which means when they say that that market isn't worth what you say it is, you can ripost by saying, nuh, I'm the only person in the world who even knows what this market is. So how can you tell me it's not as big as I claim it's going to be?
- [07:58]
Ruby Jones
But the scale here when we're talking about AI is where this gets a bit frightening. I mean, you say we've reached the point where the US economy, economy, which really by extension means the world economy, depends on AI and its growth. So how precarious is that?
- [08:14]
Cory Doctorow
Oh, it's extremely precarious. This is the frightening thing about AI. It's not like that we're going to teach too many words to the word guessing program and it's going to wake up and become God and turn us into paperclips or something. It's that seven firms, six of whom are losing money to the seventh one, represent 35% of the S&P 500, the most important financial index in the world. They are all passing around the same hundred billion dollar IOU and pretending that it's in all of their bank accounts at once. Which you know, to call that accounting fraud is to do violence to the noble accounting fraud. And at the same time, every new generation of AI is less profitable than the previous one. Every new customer for AI costs the AI companies money. And every time the AI companies have a customer that uses their products, they lose even more money. Meanwhile, the actual hard assets, the data centers, the GPUs, the they're being replaced every like two to three years. And I think we underestimate just how much of that hard capital has to be thrown away with every generation of the technology. And often it's the case that to retrofit a data center would cost more than scraping it to the foundation slab and building a new one when you buy new chips for it. So all of this stuff is basically disposable and you add it all up and it just doesn't turn into a business you could bail out. It's not like buying a bunch of distressed real estate assets that when you're done are real estate that people can live in. It's like buying a toxic waste dump that's on fire and you don't know how to Put out the fire. And every year you have to commit more resources to evacuating people from the region because it's, you know, poisoning their soil and their air.
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Ruby Jones
Coming up, what will happen to workers in the AI boom and eventual bust? So, Corey, you, in your book, make the case that nothing is inevitable about AI. And the best way to think about it is in terms of whether we are driving it to work for us or whether it's being used to force us to change our behavior. Talk me through that idea.
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Cory Doctorow
Yeah, for sure. You know, this isn't the first time labor and automation have come into conflict. And one of its bedrocks is that when labor drives automation adoption, typically it's in service to making things better. Workers want to improve their outputs. When capital drives automation, they want to maximize quantity, not quality. And often it's quantity at the expense of quality. And so we see automation now in AI being driven almost exclusively by capital. You know, when you read the business press, it's not like the early 2000s, where Harvard Business Review was publishing panicked articles about what CEOs were going to do about all the young workers who expected to use the web at the office. Now it's full of articles about how CEOs are threatening to fire workers unless they use AI. Right? So, you know, this is very much capital driven automation. But when you are the weakest link in the chain, when you're the bottleneck in the output of the machine, then you're going to be worked at the absolute limit of your capacity by a machine that by definition can last longer than you, move faster than you, and is stronger than you will. Which means that the minute you make a mistake, you're in for a world of hurt. You know, Amazon built the world's most automated warehouses. They're also the warehouses with the highest rate of injury. That's not a coincidence. It's the consequence. You don't pay eight figures for warehouse automation and run the machine slower than you need to. And when you run the machine at the maximum speed of the people who operate in it and around it, that means that the minute someone gets something wrong, they get impaled on a forklift. Hmm.
- [11:49]
Ruby Jones
Can we talk a little more about workers? Because your contention here seems to be that tech companies are pushing the exponential growth of AI because growth is key to their survival. To do that, they are in turn convincing bosses of companies that AI can do the jobs of their workers, meaning that they'll be able to either fire those workers or pay them less, leading to more profit for the company. So where does all of this leave workers?
- [12:15]
Cory Doctorow
Yeah, well, you know, I think you just have to understand that like, bosses are infinitely horny to get rid of workers because every day they have ego shattering confrontations with people who know how to do things that they don't know how to do and who, you know, tell them every time they show up with a great idea that it's illegal or immoral or it's going to kill a bunch of people. And you can, you know, dispel that fear that you're in the backseat with a Fisher Price steering wheel instead of in the driver's seat by using AI to like come up with a product idea and the AI craps it out and you don't have to like actually talk to people about it. And what you get is a very dim world for workers. Which is not to say that AI isn't useful for workers. I mean, I think the way to resolve the paradox of, for example, programmers who sometimes say, well, I use AI and my code is better than it's ever been. I can't believe how much I'm getting done. And other programmers who are also skilled and also reliable narrators of their experience, who say, I can't believe how much tech debt we're incurring at my company. You know, we make whatever avionics never get on an airplane again because we have shoveled so much bad code into the world's civilian aircraft that they should never be trusted to fly. And you know, you look at those two groups of people and, you know, try to resolve this seeming paradox. And what you find inevitably is that the first group of workers are choosing how they use AI. And the second group of workers, well, they've seen all their colleagues fired and they're being asked to work at 10 times the former speed to mark the AI's homework and take the blame when it goes wrong. And so, you know, I think that there's plenty of useful things we can do with AI. I just don't think we're going to do them in the conditions in which the imperative is to fire workers and replace them with software.
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Ruby Jones
So we're at the point now where the tech itself is being used by corporations, sometimes at worker's expense, but it's likely vastly overvalued. So what happens if that bubble bursts?
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Cory Doctorow
Well, you know, not all bubbles are created equally. If you remember the Enron bubble where you had this energy trading firm that was just doing accounting fraud and sucking up the money of ordinary people who were just trying to save so that they wouldn't starve to death or be homeless when they got old. When they popped, there was nothing left behind for all the billions they stole. Meanwhile, there was another fraud at the same time called WorldCom. And WorldCom was also an accounting fraud, but wasn't a pure accounting fraud. WorldCom's claim was they had hundreds of billions of dollars in fiber optic orders. And to kind of make the show look good, they dug up streets all over the world and put fiber optic in the ground. And that fiber optic is still there. So when you look at contemporary bubbles like cryptocurrency, it's not really going to leave anything behind. When crypto goes to zero, we'll have like ugly monkey JPEGs and stupid Austrian economics. But when AI goes to zero, well, we'll still have data centers, we'll still have GPUs, we'll have a lot of workers who know how to do stuff. And we're going to have these open source models that have barely been touched, barely been optimized. And every time someone looks at them, they can find all kinds of ways to make them perform better. And, and I think if anything, we'll probably see some pretty good stuff as a result of that. Notwithstanding that the economic crisis is going to be terrible. And when a third of the stock market is vaporized because these firms, you know, have to finally mark their assets to market and stop preten that their IOUs are in all their bank accounts at once, we'll probably see governments around the world do austerity again, which is just going to drive more people into the arms of fascists. But in terms of the technology, it'll probably be a bit like web 2.0 where all the stupid bosses left the Bay Area and you could buy the servers they left behind for pennies on the dollar. And all the workers who had interesting ideas for what to do suddenly didn't have to convince their bosses that these were good ideas. And you know, they hired each other and made some interesting stuff. You know, I was living in San Francisco when the dot com bubble burst. And one of the things that I'd always craved during that whole bubble was these very fancy ergonomic chairs from Steelcase called the Leap Chair that were about $1,500 each. And I remember a day walking through the Mission where I lived and There was a.com CEO in front of the office where he just lost his lease, selling like a fleet of Steelcase Leap chairs still in the plastic for $25 a piece of I bought six of them and used them as a dining room set for the next 10 years. Right? You know the idea of, like buying AI now, it's like buying your steelcase leap chairs in like the spring of 2020, when you can see the fall of 2020 coming at you like a freight train. When you're going to be able to buy things for pennies. Right? Just. Just wait. If you really feel you need a sovereign AI, just wait and buy it then.
- [16:46]
Ruby Jones
Well, Corey, thank you so much for speaking with me.
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Cory Doctorow
Well, thank you very much.
- [16:52]
Ruby Jones
Cory Doctorow is in Australia this August for appearances at Sydney's Festival of Dangerous Ideas and in Melbourne at the Capitol, presented by the Wheeler center and now or Never. His new book, the Reverse Centaur's Guide to Life After AI is out now.
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- [17:48]
Ruby Jones
Also in the news, Victoria's Premier Jacinta Allen could today be rolled just months out from the November state election. A group of ministers and MPs met with the premier yesterday, urging her to stand down. Deputy Premier Ben Carroll has advised the Premier that he intends to be a candidate for leadership in the event of a spill which is likely to unfold at a caucus meeting today. And South Australia has recorded seven new suspected cases of H5 bird flu. If further testing of the cases by the CSIRO comes back positive, it'll take the total number of bird flu detections in South Australia to 14. To date, there have been no H5 bird flu detections in the poultry industry. Captive birds, pet or other wildlife and livestock and primary industries and wildlife organisations say they're working alongside species, state government to stay vigilant. I'm Ruby Jones. This is 7:00am thanks for listening.
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