America’s Economy Is Entering a New Era — ft. Noah Smith

Summary

Prof G Markets — "America’s Economy Is Entering a New Era"
Guest: Noah Smith
Original Air Date: July 24, 2026
Host: Scott Galloway (“Prof G”) with Ed Elson
Podcast Network: Vox Media

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Episode Overview

In this episode of Prof G Markets, hosts Scott Galloway and Ed Elson are joined by Noah Smith, writer of the "No Opinion" blog, to dissect the seismic forces shaping America’s economic future. The conversation centers on the ongoing AI revolution, U.S.-China tech rivalry, the risks and realities behind AI bubbles and “token maxing,” concerns about economic inequality, and the looming demographic challenge of falling fertility rates. Noah brings his signature blend of analytical clarity and accessible commentary, unspooling nuanced views on thorny policy debates, business models, and what it will take for America to continue leading in a turbulent era.

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Key Discussion Points & Insights

1. The U.S.–China AI Race: Substance or Hype?

• Kimi K3 and Chinese AI Advances [07:31–10:22]

  • Noah notes that Chinese AI models, like Kimi K3, often perform well on benchmarks but can be “very brittle” in real-world application. There are suspicions some models are “simply an American model that was copied.” Export controls, particularly on inference (not just training) compute and chip-making equipment, remain effective in limiting Chinese advances.
  • Quote:
    “Export controls have been extremely effective… This may turn out to be another deep-seek moment where reports of world-beating capabilities turn out to be very exaggerated.” — Noah Smith [09:37]

• Is China “Dumping” AI? [11:45–13:49]

  • Ed raises the idea that China could be “subsidizing inference” in the same way it previously did with steel, thereby threatening U.S. AI players through “AI dumping.”
  • Noah acknowledges the possibility, but points out Anthropic’s surprising profitability, and suggests dumping’s main risk would be if U.S. companies can’t fund the next generation of models.

2. Are We in an AI Bubble or Demand Crisis?

• Artificial Demand and “Token Maxing” [14:31–25:45]
  • Discussion of whether today’s AI demand is sustainable or “artificial,” with usage driven by subscription metrics and circular customer-investor relationships rather than ROI.
  • Noah compares this to electricity’s initial lack of productivity gains—the learning phase is both costly and essential:
    “I'm not sure that token maxing is wasted because all these people are learning what you can and can't use AI for, what it does, what it doesn't do.” — Noah Smith [23:58]
  • He highlights the uncertainty about scalability and ultimate value creation, but says even misallocated tokens could be a vital part of the learning curve.

3. AI Biosecurity and Existential Risks

• Risks from AI-Enabled Bioweapons [10:37–11:41]
  • Noah warns that AI-enabled biotechnology could create novel viruses, outpacing existing biosecurity controls.
  • Quote:
    “We need to deploy a defense in depth against doomsday viruses— and that's just not being done yet. If you're not scared about this, you should be more scared about this than you are.” — Noah Smith [11:34]

4. Broader Economic Anxiety: Inequality & American Power

• Wealth Inequality—A Threat to Social Cohesion? [29:13–34:16]

  • Dramatic concentration of wealth at the top, and how that’s perceived:
    “I don't think the sheer number is like, 'Look at how much these people have.' I think instead people think about inequality of power, …about the companies that these people control… Are these companies being run in our best interests?” — Noah Smith [30:29]
  • Noah advocates for restoring a sense of shared stake—perhaps through sovereign wealth funds or government-held index funds—so Americans “feel they have some sort of stake, not just financially, but also in terms of power.”

• Debating Sovereign Wealth Funds & Redistribution [34:16–44:12]

  • Ed is skeptical, worrying that government investing (especially with borrowed money) picks winners/losers, creates regulatory capture, and piles debt on future generations.
  • Noah argues you can avoid stock-picking by indexing, and that most Americans can’t directly invest due to lack of liquidity. He emphasizes redistribution and insurance:
    “Redistribute capital income to regular people... If you have the government buy services, like pay for old people’s healthcare… that’s redistributionary.” — Noah Smith [39:09]
  • They agree on the potential for “baby bonds” or investment accounts at birth to be meaningful, and Noah highlights Japan’s analogous experience.

5. Public Pushback & Data Center NIMBYism [47:07–49:07]

• Noah examines controversies over new AI data centers—disputing overblown water concerns, but recognizing noise and power demands can impact communities.
• Suggests much of the pushback is an expression of deeper anxieties about AI itself, particularly around job displacement.

6. Fertility Crisis and Demographic Headwinds [51:29–56:20]

• U.S. fertility fell to a record low; Noah warns this will introduce a “slow trickle” of problems—older workforces, less corporate dynamism, heavier tax burdens, fierce immigration debates, and mounting pressure on Social Security:

  • “It’s corrosive… It won’t be a thunderbolt that happens all at once.” — Noah Smith [52:26]

• He calls for a shift from “pay as you go” Social Security to more sustainable models, more redistribution, higher skilled immigration, and proactive efforts to boost the fertility rate. Redistribution becomes even more urgent as benefit cuts loom.

7. Semantic Debates: Socialism, Capitalism, or Redistribution? [56:20–59:50]

• The hosts lament semantic gridlock over terms like “socialism.” Noah urges using “redistribution”—not “socialism”—for accurate debate:
  • “Call things what they are. Use terminology to mean specific, useful things.” — Noah Smith [59:50]
• Ed observes that Scandinavian “socialism” is in practice more capitalist than U.S. production, with greater re-distribution.

8. Reasons for Optimism? America’s Enduring Dynamism [60:11–62:17]

• Noah ends on a bullish note:
  • Productivity growth appears to be accelerating, probably linked to AI, “without apparent job loss.”
  • A boom in small-business formation and independent entrepreneurs suggests robust economic dynamism.
  • “AI is not destroying jobs, and yet productivity has accelerated. All these people, there’s all this dynamism, people starting small businesses. That’s a big reason for optimism.” — Noah Smith [62:09]

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Notable Quotes & Memorable Moments

• AI Bubble and Token Maxing:
  “I'm not sure that token maxing is wasted because all these people are learning what you can and can't use AI for, what it does, what it doesn't do.” — Noah Smith [23:58]

• On Biosecurity:
  “We need to deploy a defense in depth against doomsday viruses—and that's just not being done yet. ...If you're not scared about this, you should be more scared about this than you are.” — Noah Smith [11:34]

• AI & Job Loss:
  “All these people thought AI was a job destroyer and a human remover. And so far it's turning out not to be that… That’s a big reason for optimism.” — Noah Smith [61:26]

• Redistribution vs. Socialism:
  “I would just use the word redistribution… instead of tying it to a whole package of ideologies by calling it socialism.” — Noah Smith [59:50]

• On Wealth Inequality’s Real Impact:
  “People are being squeezed at their jobs, and they're being squeezed on their finances... The way wealth inequality comes home to real people [is through] inequality of power.” — Noah Smith [30:29]

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Key Timestamps

• [07:31] — China’s AI ambitions & export controls
• [10:37] — AI biosecurity threats
• [11:45] — Is China “dumping” AI on global markets?
• [14:31] — Demand-side crisis and artificial usage metrics in AI
• [23:58] — Is wasteful AI spend just a necessary learning curve?
• [29:13] — AI, public trust, and wealth inequality
• [34:16] — Sovereign wealth funds: redistribution or government overreach?
• [39:09] — Rationale for redistribution, “baby bonds,” and government investing
• [47:07] — Data center NIMBYism: Real vs. imagined risks
• [51:29] — The U.S. fertility crisis: Long-term dangers
• [56:20] — Redistributing, not “socialism”
• [60:11] — A bullish future: AI, jobs, and American dynamism

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Summary

This episode provides a high-level, yet approachable, master class on how the interplay between AI innovation, economic structure, demographic change, and public mood is positioning America for both immense opportunity and daunting challenge. Noah Smith’s analysis is as pragmatically hopeful as it is clear-eyed, cautioning against easy answers while urging targeted, creative policy responses. Whether on AI bubbles or the meaning of “socialism,” the exchanges are sharp, the explanations lucid, and the outlook refreshingly unjaded.

Transcript

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[Ed]

Today's number five. That's how many cups of coffee per day are safe for most adults and may even have health benefits, according to the American Heart Association. Ed what do you call sad coffee?

[Sponsor Announcer]

What's up Despresso?

[Host (Prof. G)]

A lovely joke to start our Friday episode. How are you doing?

[Ed]

I'm doing great. I'm in. I'm in la, which I absolutely love. I I would turn the camera around, but I'm worried I'll the tech team would freak out. But I'm overlooking the Hollywood Hills and I absolutely love it here. I love California. I love Los angeles. It is 80 degrees, but it's dry out so it just feels. I mean, when you and I were in Miami and it was 89. It felt like we were in a air fryer.

[Host (Prof. G)]

Suffocating.

[Ed]

Yeah. This at 80 feels pleasant.

[Host (Prof. G)]

It feels. That's very nice.

[Ed]

It's. Yeah, I, I love it here. So I'm happy. I'm a little bit jet lagged, but. And unfortunately. What, what the podcasts that start. You'd think I'd figure this out at 2pm in London start at 6am in LA. So I was up at, I was up at, oh, dark hundred hours this morning.

[Sponsor Announcer]

How are you, Ed?

[Ed]

Enough about me. I have enough about the expresso part of this. What's going on with you?

[Host (Prof. G)]

I'm doing very well. I'm very excited because tonight I'm going to go see the Odyssey. So I've been waiting for over a year. Have you seen it?

[Ed]

No, I'm the same. I want to see it in imax. I want to see it with my boys. So like all of these things get

[Host (Prof. G)]

in the way of going and seeing it. Exactly. I just sort of cut my losses. We're not going to go see imax, we're going to go see it regular. But that's okay. I just want to get out there and see it. So I will give you my review, but I mean, the reviews have been spectacular. 98% on rotten tomatoes, critics calling it a flawless masterpiece. So I'm very excited about it.

[Ed]

Yeah, well, I'm refusing to see it because a black woman is, is Helen and a transgender man as a warrior. That just, that's just, that's the line not being accurate to how you cast a myth, which to me is an oxymoron. You get to do whatever the fuck you want. It's a myth, folks. Anyways, I can't get over that.

[Host (Prof. G)]

I would like to know the percentage of people who are upset about the Odyssey casting and who believe that the Odyssey is a factual historical story. That would be a very interesting statistic that we should get, get some survey data on. But yeah, that, that wasn't enough to keep me away. I will be watching it and I'll be very excited to see. See how it is. Who knows, Maybe I won't even like it.

[Ed]

I think you're gonna love it. My. Yeah, I've heard nothing. I, I go in with such a bias because two of my favorite films are from Christopher Nolan Oppenheimer. And I think the perfect film, perfect movie, at least for me, whose favorite star of any movie is Hitler, is Dunkirk.

[Host (Prof. G)]

I thought you were going to say Interstellar. That's my favorite.

[Guest or Secondary Host]

Really.

[Ed]

I think I Need to do edibles and watch Interstellar again.

[Host (Prof. G)]

I didn't watch it again.

[Ed]

I kind of didn't get it.

[Host (Prof. G)]

I rewatched it recently and then I rewatched it again because it was so good, and I had forgotten how good it is. That is profound. And moving on multiple dimensions, so that's my favorite. Dunkirk's great, too. The Dark Knight is up there for me.

[Ed]

Great movie. Great movie. Yeah. Memento.

[Host (Prof. G)]

Yeah, Memento is good. One of his early ones.

[Ed]

That guy has a bright future in Hollywood. Although I still am very upset. The thing I didn't like about Interstellar, and it stuck in my craw. What about the dude on the spaceship who was up there for 22 years or 12 years, just roaming around waiting for Matthew McConaughey and Anne Hathaway to get. I mean, think about. They're on that, wherever they were, and they come back after 28 minutes, and he's been there 12 years, and they're like, hey, dude, what's going up?

[Host (Prof. G)]

How you doing?

[Ed]

What the fuck do you think is up? Nothing. I've been here for 12 years. I found that very upsetting.

[Host (Prof. G)]

Very upsetting. That's kind of the point.

[Ed]

But, yeah, I agree.

[Host (Prof. G)]

Well, we have a very good and exciting interview to get into today. We recorded this conversation live on Substack earlier this week. If you'd like to catch the next live stream, we will be doing plenty more live streams. Then go to profgmedia.com where you can subscribe. We do a lot of these live streams. They're a lot of fun. I thought it was fun to do this live with an audience as well. So without further ado, I'm going to transition us into our conversation with Noah Smith. Now that we are past the halfway point of the year, we wanted to take a step back and look at some of the biggest forces shaping the economy. And to do that, we have invited someone we are a big fan of. He is a prolific writer whose work spans everything from AI to inequality and demographics. And he has a way of explaining very complicated economic trends in a way that is both insightful and accessible. And that's why we really like his work. So we wanted to ask him some of the biggest questions that we are wrestling with right now. For example, are we in an AI bubble? And if so, what happens if it bursts? Is rising inequality becoming a threat to economic growth? And also, has America officially reshuffled in the global order? So, without further ado, here is our conversation with Noah Smith, writer of the no Opinion blog. Noah thank you so much for joining us on Prof. G Markets and thank you so much for joining us on a live stream. Very exciting stuff.

[Noah Smith]

Thanks for having me on.

[Host (Prof. G)]

So I want to get started here with some recent AI news which is the release of the Chinese model Kimi K3, which has caused a lot of concern in the AI world. I mean, what we know about this new model is that it's open source, it's very cheap and it also outperforms anthropic and OpenAI's models on a variety of benchmarks which has a lot of people worried and thinking about this idea of is China about to supersede the US when it comes to AI? Are they about to steal America's lunch? Let's start with that question. What do you make of Kimike 3 and what do you make of the China versus US AI race at this point?

[Noah Smith]

So with Chinese models so far the pattern has been that they test very well on benchmarks and then that their capabilities are very brittle. When you go beyond just sort of teaching to the test, if you will, that's one issue. This has been a very consistent thing. So when we've seen more sort of more comprehensive tests of Chinese models abilities, they've been increasing more slowly than the American models. There's also a question of to what degree this Chinese model is simply an American model that was copied. So in terms of whether export controls are working, the overall story has been again and again that export controls do work. In addition, China has far less compute available for inference. So you know, most of what differentiates these models right now is on their performance is how much compute you can use for, for inference. You know, how, not how much you use to train the thing, it's how much you, you know, you can let them think really. And so China has a lot less compute there. And AI and export controls have been very important in limiting China's compute on inference on the capabilities despite. So you know, even if you exactly steal the weights for Claude, which maybe they did, who knows. I'm not a technical expert so I can't say whether they how likely that is or maybe you use a distillation thing. So it's very similar to Claude. So even if you do that, you can't run at Claude's capability most of the time if you don't have the inference compute. So export controls have been extremely effective in terms of, and that's not even counting the export controls on chip making equipment which have been very effective in keeping the Chinese chip making industry well behind the, you know, the Taiwanese, Korean, etc. And US industry and so I think export controls are still quite effective. And this may turn out to be another deep seek moment where we find out that the, the, you know, reports of, of extremely advanced, you know, like world beating capabilities turn out to be very exaggerated.

[Host (Prof. G)]

When you look at the AI landscape today, which are the issues or the topics that you think are not getting enough attention that matter more than perhaps the media or the conversation online give credit for?

[Noah Smith]

Well, I mean obviously AI biosecurity, like humans are vulnerable to viruses.

[Interjecting Speaker / Co-host]

And so there are, you know, viruses

[Noah Smith]

that, that kill all, you know, most

[Interjecting Speaker / Co-host]

of humanity or all of humanity don't naturally tend to evolve because those viruses will burn themselves out.

[Noah Smith]

But maybe you can make one if

[Interjecting Speaker / Co-host]

you intentionally design it. And our controls on biolabs are very weak. We need to implement stronger controls on the places where these things could actually be made and disseminated in the physical world. It'll be a while before we get these fully automated robot labs.

[Noah Smith]

But humans can make stuff. And humans who insert some genetic mutation

[Interjecting Speaker / Co-host]

into a virus and then email it to you, not email it to you, just mail it to you through the

[Noah Smith]

post office, they don't necessarily know that

[Interjecting Speaker / Co-host]

the mutations they inserted into, you know, common COVID 19 are going to turn it into a virus that just kills all humanity.

[Noah Smith]

They don't know that because they don't,

[Interjecting Speaker / Co-host]

they're not AI, they can't understand.

[Noah Smith]

So we need to deploy a defense

[Interjecting Speaker / Co-host]

in depth against doomsday viruses and that's just not being done yet. Although people are starting to talk about it more.

[Noah Smith]

But if you're not scared about this, you should be more scared about this than you are.

[Ed]

So one of our big themes or predictions is that China is engaging in modern day dumping, but instead of steel, this time it's with AI. And I think there is evidence that token usage from Chinese models has exploded. Any thoughts on the notion of AI dumping?

[Interjecting Speaker / Co-host]

China could absolutely subsidize, you know, subsidize inference so that its models are temporarily cheaper. And then this throws a wrench into the profit, you know, profit and loss of Anthropic and OpenAI and there's, you know, they cause them a crash. OpenAI and Anthropic go out of business or don't have enough money to like train the next generation of models. And then, you know, then, then China's eliminated some American AI advantage there. It's absolutely possible that that could happen

[Noah Smith]

if, but at the same time we

[Interjecting Speaker / Co-host]

have seen anthropic Profitability is expected to be positive on an operating basis this year. That's amazing for a company with that amount of growth. Like usually if you're investing that much, you're not profitable. How long did it take for Amazon to be profitable? Many, many, many, many, many years. Anthropic's doing it much more quickly. Usage is exploding. I think OpenAI will probably get there. And then so far the profitability of these companies doesn't necessarily seem to be under threat.

[Noah Smith]

If we see Anthropic and OpenAI to find the capital to invest in the

[Interjecting Speaker / Co-host]

next generation of models, then we should be worried. Until then, there's nothing that AI dumping really does except for ATT and CK. OpenAI and anthropic. Now maybe you can make an argument that it's hurting some of our players further down the line. Like Google could be getting hurt or you know, maybe Meta has been driven out of the AI race by the fact that they can't, you know, afford to keep up with Chinese inference because of dumping. So that's something that, that deserves to be looked into. But so far, if OpenAI and Anthropic are still, if their profitability is still improving rapidly, I'm not so worried because that's the mechanism by which dumping would hurt us.

[Ed]

I mean, it appears another theme we've seen is that we've gone from worrying about a supply crisis where there's not enough inference, compute and energy to potentially a demand crisis. Because it feels like a lot of the initial demand creators who are supposed to create demand, whether it's LLAMA or xai, they have not created the demand they'd initially anticipated on the front end. So they've taken all of their infrastructure build out and now are renting it to what appears to be a narrowing group of the demand side, specifically OpenAI and Anthropic. Do you think there's any fear that we're moving or do you see any evidence that we're moving from a supply side crisis to a demand side crisis?

[Interjecting Speaker / Co-host]

I haven't seen evidence of that yet, but it could happen. I have not seen evidence of a demand side crisis yet. Demand for all these things continues to explode. That demand is, you know, going to American companies. A lot of that. You know, we've seen, we've seen demand for, for, you know, sort of cheap substitute from China also rise. That's inevitable. You know, like I said, you might say that like, oh, Gemini isn't as good. Google's falling behind because there's not enough demand for their, for their products because they're being, you know, as a slightly lower down the hierarchy, slightly behind the frontier model, they're being out competed by Chinese models with subsidized inference. So, so you could see that I think the bigger danger on demand is you know, sort of a, basically a collapse due to over temporary overuse.

[Noah Smith]

So if you have every company that

[Interjecting Speaker / Co-host]

says we need to token max guys, we need to just use AI as much as possible to figure out what we can use this for and then they just token max, token max, token max. And then this drives demand up and then you know, OpenAI and Anthropic and Google and whoever make reckless capital budgeting decisions based on ideas that that growth curve will continue and then it doesn't continue and it collapses because people are like wait a second, we're not actually building shippable software, we're not shipping profitable software with this, with all these tokens, with all these tokens, what are these tokens going to produce? Then we could see a crash, right? And China's companies might be better able to weather that crash than us because of state subsidies, keeping them alive. And keep in mind by the way that most of these state subsidies are delivered through below market rate bank loans, not through the government mails you a check. So that's how most of these subsidies are actually getting done. The United States has the capability to match that. If we were to use modify the Dodd Frank legislation to get our big banks lending to AI and also to manufacturers by the way, if we want to do industrial policy, if we want to fund it, if we want to subsidize, it's not by mailing. I mean mailing government checks like we did with the CHIPS act can be effective, but I think the most effective and durable way of subsidizing things is actually through bank loans. And we already have the legislation in place. That's DOD Frank. To be able to do that, all we have to do is say hey guys, hey JP Morgan Chase. If you lend to this, these strategic industries, whatever, you can loosen your Tier 1 capital requirements and then they do, the loans start to flow and then so we can do that. We've already done the repression part of financial repression. We just have to do the lending channeling part. If we want to do the kind of subsidies China does, we can actually match that pretty easily.

[Host (Prof. G)]

There is an evidence that there is no demand, clearly. I mean we've seen the demand, we've seen how much money is flowing into this ecosystem. If I could kind of tweak it it would be there as a concern that the demand that we are seeing, or at least the majority of the demand that we are seeing is artificial. And you kind of hinted at it with the token maxing where these companies are like telling their employees like, doesn't matter about the roi, doesn't matter how you do things, like you need to use as many tokens as possible. We had the issues with the circular financing stuff where you had these kind of circular deals where investors turned out to be various AI companies, customers. At the same time you have the fact that, you know, a lot of the revenue that's being plowed, a lot of the business model is predicated on the spending of OpenAI and anthropic who are currently money losing businesses. And so the money that they're spending, it's not their cash flows that they're spending, they're spending their investors money. And then to your point, there's also the subsidy side of it. If you have companies in China who are receiving subsidies through whatever mechanism, and if we're going to start thinking about doing the same thing over here in America, that translates to me as yes, tens, hundreds of billions of dollars in demand. But demand, that doesn't feel quite organic and that feels in a lot of ways forced or artificial. Which makes me think, well, if we were to take off our foot off, off the pedal here, then something might collapse, something might break in a big way. What do you make of that argument and that view? Do you think there's merit to that?

[Noah Smith]

Explain to me artificial demand circular deals

[Host (Prof. G)]

where you have Nvidia and OpenAI investing in each other and then being each other's customer.

[Noah Smith]

How does that create demand for, for the end product?

[Interjecting Speaker / Co-host]

I don't understand.

[Host (Prof. G)]

Well, it creates demand for Nvidia's chips.

[Noah Smith]

That's investment that, you know, so, so that's like, yes, it's demand for the,

[Interjecting Speaker / Co-host]

the, you know, upstream stuff.

[Ed]

So right now it appears like a lot of the usage companies are because of these metrics around, such as where we're tracking how many tokens you're using as opposed to tracking or putting in place real roi. And the thought is some of that demand might fall off. I think the more puncturing issue is can they maintain this level of demand once they move to a pricing system that sustains? I mean, I use Claude, I think it's called Claude Pro or the one that's 200 bucks a month. Supposedly it's costing them $1,000 to $2,000 to service me. And the question is at what point? Does this demand? Can it sustain it? Anything resembling the growth that it's been that the street wants to see to support these private valuations once it's priced to its actual cost. In other words, is this, does this business model work? Do you think this business model works?

[Noah Smith]

I don't know.

[Ed]

Fair enough.

[Interjecting Speaker / Co-host]

I don't have a way of tracking that. I don't know that other people do either.

[Noah Smith]

I think I wrote about that.

[Interjecting Speaker / Co-host]

I wrote a post about that called How Much Software do we really Need? Like you, I hear anecdotes about token maxing, token maxing being the term for

[Noah Smith]

the benchmarks, you know, the usage based

[Interjecting Speaker / Co-host]

benchmarks that you're talking about. Instead of like profit or, you know,

[Noah Smith]

based benchmarks, just how much input can we use?

[Interjecting Speaker / Co-host]

Like that doesn't sound like a great benchmark for profitability.

[Noah Smith]

I hear anecdotes.

[Interjecting Speaker / Co-host]

I don't, you know, I have, I

[Noah Smith]

don't have hard statistics on how much this is being done, who's doing it. This is all internal.

[Interjecting Speaker / Co-host]

None of this data is public.

[Noah Smith]

And anecdotes don't equal data. And I think we should resist drawing

[Interjecting Speaker / Co-host]

excessive generalizations from anecdotes. I don't know how much value is

[Noah Smith]

being produced, because value, first of all, it could be that lots of value is being produced, but it won't be

[Interjecting Speaker / Co-host]

realized for a while.

[Noah Smith]

So if a lot of this is learning, if the value of using this stuff is learning how to use it, we won't see that for a while. It's not going to show up. Like, I use this many tokens and I ship this much profit worth of software.

[Interjecting Speaker / Co-host]

This, I get this much profit from

[Noah Smith]

the software I shipped with the tokens that I used. It won't necessarily be that clean. You know, if you, if you look at how productivity is measured, like Chad

[Interjecting Speaker / Co-host]

Syverson does a good job of measuring this productivity, but it's really hard.

[Noah Smith]

You know, like we, you can look

[Interjecting Speaker / Co-host]

at very established industries like ready mix

[Noah Smith]

concrete or something, and you can look at how you, you can really, you know, the production process, you know, the,

[Interjecting Speaker / Co-host]

the use cases, you know exactly how this stuff is turned into value.

[Noah Smith]

You know, inputs are turned into value, but for AI, you don't. And so there's a lot of learning here, right? So the classic example here that everyone cites is electricity. When electricity was first introduced to manufacturing, you know, by this time everyone was using it to like light their homes or whatever. But, but when electricity is first introduced to manufacturing in like the 19, you

[Interjecting Speaker / Co-host]

know, 1900s, early 1900s, they just they

[Noah Smith]

had these vertical factories that were turned with these big crankshafts where the entire conveyor belt moved at the same speed because it was driven by a steam boiler. They ripped out the steam boiler, put

[Interjecting Speaker / Co-host]

an electric dynamo and drove the same thing.

[Noah Smith]

Found out, wait, it's less energy efficient. Electricity sucks. They electricity maxed, right? They used an improper benchmark as their, you know, and then they tore out the dynamos, put back in the boilers and ignored it. And then about 20 years later, people figured out, oh, if we completely reorganized how the factory worked and ran workstations in parallel instead of in series, we could increase productivity a lot. And then you got a very rapid

[Interjecting Speaker / Co-host]

increase in productivity by a factor of

[Noah Smith]

like three to five or something like that. Just this massive, massive burst of productivity growth with the reorganization of the factory. And so we got modern looking factories, not these like ancient looking, you know,

[Interjecting Speaker / Co-host]

multi floor factories that now are part

[Noah Smith]

of like old Mickey Mouse cartoons. And so was the initial use of the, of the, you know, electricity to try to replace steam directly, was that wasted money?

[Interjecting Speaker / Co-host]

I don't know.

[Noah Smith]

I can't tell you that that was wasted money because there was learning here. You learned what didn't work and that was probably an important input into the, you know, people who redesigned the factory later on and got this huge increase in productivity. They had to see what didn't work and think about what you could and couldn't use electricity for. And so I'm not sure that token maxing is wasted because all these people are learning what you can and can't

[Interjecting Speaker / Co-host]

use AI for, what it does, what it doesn't do.

[Noah Smith]

And it's forcing a lot of people to think about AI first production processes. So now we're, we're, everyone's already talking about building AI first businesses and AI first business models. Maybe a couple people have, you know, my friend Edmund Zagreb has this, this

[Interjecting Speaker / Co-host]

company where he's trying to do this.

[Noah Smith]

We're getting on this much faster than the people did with electricity, because information travel, you know, travels much faster, right? So we know we need to do this faster than they knew that with electricity. Okay, we're already on this. And so whether or not it's going to take us 20 years this time, or maybe only five or something to build AI first business models that realize enormous productivity gains, I can't say. And whether that's even possible, I can't say. Like there may be inherent limitations to AI technology. Once you scale things up from ask one AI some questions, to have all these AI agents interact and do business together. That may not scale up as well as I think it does, as people think it does. I would guess it does scale up, but maybe it doesn't. We don't really know yet. And I think if and when suppose we do end up finding massive ways to massively increase productivity with AI. The blind alleys and dead ends that we spent all those tokens on before may have been an integral and important part of that. And so that productivity may be realized in a bit now, whether in the interim there's a big crash and what that implications are for producers like OpenAI Anthropic, like Upstream, producers like Nvidia, I can't say. And you know, like that's beyond my ability to predict, I think. But it could happen.

[Host (Prof. G)]

We'll be right back after the break and if you're enjoying the show so far, send it to a friend and please follow us on YouTube, Spotify or wherever you get your podcasts.

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[Host (Prof. G)]

We're back with property markets, something we've been covering. A lot related to this is just the public perception of AI as more the more dollars we plow into this technology, the more we roll ahead, it seems the more pushback we're starting to see in the general public and at the political level. We have obviously seen Kathy Hochul, the governor of New York who has issued a pause on data center production and it seems like that is growing as a form of AI regulation is like just hit the pause button on data centers. But it also seems to be related to some of the wealth inequality issues that we keep on seeing again kind of getting worse every passing year. In America, the top 1% of Americans control roughly third of all, a third of all U.S. household wealth, which is an all time high today. To what extent do you think that these two issues are linked? And how much of a problem do you think wealth inequality really is in America? What does it mean for the US

[Noah Smith]

economy when wealth inequality goes from, you know, when, when the top 1% has like this many trillions of dollars versus that many trillions of dollars? It's not a number humans understand, you know, regular people, you know who are just trying to make their credit card payments don't understand that, you know, you need data by, you know, and then you have, you can have like, economists who gather data on this and then argue about how much is really happening because it's hard to measure this top wealth. And then you have people arguing. But I don't think the sheer number is like, oh my God, look at how much these people have. I don't think that's the way that wealth inequality becomes a problem in normal people's minds. I think instead people think about inequality of power and people think about the companies that these people control. And are these companies being run in our best interests? Everyone knows these people are getting rich. Small changes in exactly how much they're getting rich or even large changes in how much they're getting rich don't affect the basic idea that, you know, people are being squeezed at their jobs and they're being squeezed on their finances and they're being squeezed in their consumption. And they don't necessarily see like. And, and then they, they hear, oh, all these stories about how fabulously rich the people who own these companies are getting. That's the way in which I believe wealth inequality comes home to real people. That's what we need to address the idea of can the rich guys continue to do things that make them get richer while every. While other people struggle? And I think we need to attack that from two sides. Number one, we need to make sure that normal people don't struggle. Okay, if people can make their, like, if people have less credit card debt, and if people have, you know, more wealth in their houses and, you know, which is where normal people have their wealth, by the way. Normal people have their wealth in the real estate market, not in stocks. But if people, you know, but also we can give people like, you know, wealth in terms of, like a sovereign wealth fund, what Alaska does with a permanent fund. But, but the other thing we need to do is to make sure people know that these rich guys are ultimately under the control of the people through the government. That the government, although the government doesn't necessarily tell you what to do with all your businesses. Central planning. At some sense, the. These big corporations are serving the interests of the nation. And I think that during World War II and the early Cold War, people had a very strong sense that big companies like Ford, US Steel, Alcoa, gm, and all these, Boeing and all these companies were serving America. These were American companies working for America and working for the people of America through the nation state. We need to Reestablish that. So, so Sam Altman floated the idea of a government stake in OpenAI. He's right. And that's how this has to happen. And so sovereign wealth fund is really the best policy we can do to do all of this. So sovereign wealth fund says, so Alaska has the Alaska Permanent Fund. You know what that is, right?

[Host (Prof. G)]

The oil. Right.

[Noah Smith]

So it takes Alaskan oil revenues and natural resource revenues and redistributes the money to the people of Alaska. We need to do that with, with, you know, tech and AI and these, these strategically important industries where we don't, you know, have, might have the government micromanage in central plan and control business decisions, but we redistribute some of the capital income. And if necessary we could, if our companies were going rogue and doing stuff that was against the interests of the nation, we could have our, you know, the government as a shareholder can send someone to the shareholders meetings instead of just regulation and law. In addition to that, in addition, we can have someone go to the shareholders meeting say, hey guys, you need to act in the interest of America and the people of America. And that's what we need. We need people being reassured that they have some sort of stake in this, not just financially, but also in terms of power. I think that solves the problem.

[Ed]

I would push back on that. No, I think sovereign wealth funds are used when a nation that's blessed with an inordinate amount of natural resources has excess capital beyond their spending commitments. A sovereign wealth fund in the US would be nothing more than issuing debt that Ed's going to have to pay back to fund the sovereign wealth fund, such that a current administration could pick winners and losers, which governments usually aren't very good at. I understand the need to invest structurally in certain industries that have defense implications. But generally speaking, when the administration decides we should buy 5% of OpenAI with debt fueled capital that will create regulatory capture and disparage or diminish the other competitors. I just can't find evidence of where that makes any sense and ultimately doesn't just end up with a warehouse full of unsold deloreans or Air France. A sovereign wealth fund I just think is indefensible at this point in picking winners and losers by an administration, many of whom have no experience in business or their experience in business is bankruptcies and failed subcontractors. So again, sovereign wealth fund, I think it's a terrible idea. Where am I wrong?

[Noah Smith]

If you don't want a sovereign wealth fund to pick winners and losers you can just have it by index funds. I invest in stocks, but other than,

[Interjecting Speaker / Co-host]

you know, I invest in friend startups.

[Noah Smith]

But I don't, I don't really sit there thinking, I think Ford's going to do well this week. You know, I don't, I don't do that. I don't pick, I don't pick winners and losers. I buy the index, you know, and then I, I buy the, you know, Vanguard, Vanguard index fund. And you can have the government do that too. The only winner you're picking then is America itself. You're making a bet on America you're not betting on for. You're betting on American stocks over foreign stocks. That's fine. But then you're not picking winners in terms of industries or companies or things like that. So if you don't want your sovereign wealth fund to do that, then you

[Interjecting Speaker / Co-host]

don't have to have it do that.

[Noah Smith]

It's really easy to not have it do that. In fact, the sovereign wealth fund proposals that I've heard involve explicitly buying the index don't, you know, so I, I think that ad hoc stakes in Companies like, like OpenAI are dangerous for this reason. But then you can easily solve that just by buying the index. So if you look at the labor share of income, it's going down, it's going down by any reasonable measure. And so if you buy a very broad index of stocks, all you're doing is buying some of the capital, share of income and then redistributing it. So you're doing that. So that fear, I think, of picking winners and losers. I also think that picking winners actually has a much better track record than people think. I think that the idea that this always picking winners always fails, it doesn't, it has some pretty predictable failure modes that we see a lot, sure. But it's not like the simple easy nostrum of oh, picking winners always fails. Guys, if, if, if I can label something picking winners, then it's something we shouldn't do. That's been proven wrong again and again. But that said, we don't have to pick winners with a sovereign wealth fund. We can just buy the index. So that's not a, that's not a worry. I think you should worry about. Or, or it should be a reason to encourage a broad sovereign wealth fund that buys index funds rather than the kind of policy Donald Trump is doing with ad hoc stakes, individual companies, which I do have very strong misgivings about.

[Ed]

I think that makes sense. You're saying as opposed to picking and winners and Losers support the US Economy and also give consumers or American citizens similar to that, I think it's the super return fund or whatever it is in Australia a chance to participate in what has been largely compounding. I guess the issue is, or the caution I would throw out there and I want to get your response is that we don't have surplus. So any incremental investment in an index fund or a company is going to come from debt which will ultimately be taxes on either current or future generations. Why not just try and maintain lower deficits and let individuals decide what companies. In other words, ultimately that's saying that the government is a better stock picker and indexes have effectively become stock picking. When you buy the S and P index, you're buying 40% of it's going to, going to seven or 10 companies. Isn't this, isn't this taking, isn't this me saying and fantasizing the public saying I'm going to run up your kid's credit card and then I'm going to pick, I'm going to invest in index funds rather than just getting government out of the way and letting you buy your own index funds.

[Noah Smith]

The main difference there being that most people don't have the money to buy index funds and they don't have the liquidity to borrow money to buy index funds.

[Ed]

And so if the government does it, how does the person who doesn't have money.

[Noah Smith]

Redistribution.

[Ed]

Okay, so it's a redistribution because then you would have some sort of mechanism for returning the gains to citizens.

[Noah Smith]

Yes, that's the. Yes, that's the point. Redistribute capital income to regular people. So you got some person who works at a gas station, that person could theoretically scrimp and save and buy a tiny bit of index fund. But the transaction costs are high, the information costs are high. They don't understand how to do it and practically they can't borrow. What does the government borrow at a couple percent. Even in, now that interest rates have risen a ton, what's the 20 year treasury rate? I don't even know. It's like a few percent. Do you think the gas station worker can borrow at a few percent to buy an index fund? You're crazy that it's absolutely not. There's two pieces here. Number one is it's redistributionary because if you, if you have the government buy services, you know, like pay for old people's health care or something, or maybe build highways or whatever, or provide for the national defense, if you have the government do those things that Benefit the gas station worker just as much as they benefit a rich guy. Okay, that's redistributionary and it's. And so that's the first benefit. The second benefit is insurance. So if you debt is unconditional, you know, it's like you pay the same interest rate back whether or not AI takes over our economy. But if you buy the AI company, part of the AI company and then you're able to redistribute that income in the future, it functions as insurance because in the state of the world, it's a state contingent asset. Because in the state of the world where AI takes over the whole economy, normal people get a piece of that. But the amount of debt that taxpayers have to pay back doesn't change its state uncontingent. It doesn't change based on whether or not AI takes over the economy.

[Ed]

Sounds like you'd be a fan of Trump bonds or baby bonds.

[Noah Smith]

Yeah, baby bonds. I mean that's been done in other countries and it's been successful. Yeah, absolutely, 100%. And that's exactly what you do. That's a thing you can do. So you can choose to pay down America's debt. If you think inflation's a problem and you need to, you know, pay down some of the debt to reduce inflation, you can use it, you can do baby bonds. If you think it's better to just give people cash. Do you know UBI Fund ubi? You can also just do public goods. You can use this for research and development spending, you know, to improve productivity in a Paul Romer sense. You can use this to do national defense. If we need to build up for big war. You can use this for building highways. If we need better infrastructure, you can use this to build trains, you can use this to build, you know, critical infrastructure. And you can use this for in kind redistribution like buying old people healthcare, which is, you know, not as broad based as baby bonds, but it's pretty broad based because everyone gets old and everyone gets sick. And so you know, you can do a lot of these, these redistributionary things. So there's the insurance benefit, there's the redistribution benefit, and then there's the fact that the government's borrowing costs, you're talking about running up these kids credit card, but you're not talking about their credit card because a credit card interest rate, credit card interest rates are through the roof. Where the government interest rates are a few percent. Even after we raised interest rates to fight inflation. The government is the cheapest borrower. Right? And unless you believe that there's a good chance that the government is going to get below treasury returns on its stocks over the maturity of government debt that it takes out to buy these things, which is a possibility. I mean, that's. We haven't seen negative returns or we haven't seen below treasury returns, I think on 20 year, you know, S and P, whatever ever before. But we could see it for the first time. It's not out of the realm of possibility. We could take a bath. We could actually lose this. Right? If you use state unconting debt to buy state contingent assets. There are states of the world in which you take a bath, you lose money. Okay? The government can lose money. And this is the argument that people used to stop Bush from investing Social Security funds in the stock market back in the day. But had he done that, we would have either less federal debt or much larger Social Security benefits. A much more robust Social Security trust fund today than we do. It was actually the right idea and people used sort of the specter of risk to dunk on it to stop it back in 2005. And yes, there is risk, but it's aggregate risk. Because if corporate America is doing so bad that the stock market does really bad over a 20 year period or whatever, even a 10 year period, but especially a 20 year period, then America as a whole has done badly. It's hard to see a case in which the stock market does crap, underperforms Treasuries for 20 years in which the regular Americans are thriving. It's a weird state of the. It's a state of the world. I'm willing to bet a lot.

[Host (Prof. G)]

Again, it seems like you and I, I mean you would agree that the Trump accounts have been a good idea. I personally, I've talked about this on our show. It's one of the only policies that I've seen out of this administration that I really support and that I think is moving in the right direction for a lot of the reasons that you're describing. One, I just want to confirm that you think that Trump accounts are kind of the right idea. I wish we could just change the name because I don't see why we need to politicize this thing. But the idea of gifting a child at birth an investment account automatically buys them into, into the S and P into the aggregate capital markets of America. That to me seems like a very good thing and a step in the right direction. So one, I'd like to just get a reaction to that and then two, we're tackling like the biggest, most Difficult. Most unanswered question in economics, which is like at what point is, is US debt unsustainable? How bad is it really? I'll pose that question to you. I know it's kind of unanswerable, but I'd like to get your take.

[Noah Smith]

US Debt is on a very bad trajectory right now. That said, if you take out debt to buy US stocks and to have the government buy US stocks and you have the option to use the proceeds from those stocks to repay the debt, if you structure the sovereign wealth fund that way, then it is not, it'll be more sustainable than it is. And in fact, this is what Japan has done. So Japan on paper has a higher debt to GDP ratio than we do. But they've taken, you know, they've had the government invest like a hedge fund and made very good returns. And because of that, their debt is less of a burden than ours is now, even though it's, that's higher as a, you know, headline share of gdp, we would be the same. We'd be betting on us. I mean, Japan often invests in foreign assets, but sometimes in the Japanese market too. So the, you know, the BOJ buys stocks and Japanese companies and things like that and the, the, you know, the topics have done well. So even if we took out more debt than we have in order to buy shares in corporate America, that would, in every state of the world, except the long decline, stagnation of America state in every state of the world except that it would make our debt burden less of a problem. Right? Just like if you have a bunch of debt, okay, and then you take out some more debt to buy stocks and you're able to hold that for 20 years, right. Then your personal financial position actually just improved. You can't do this because of liquidity constraints. The government doesn't have those liquidity constraints.

[Ed]

Curious to get your take on the controversy around data centers.

[Noah Smith]

Some of the local harms of data centers that people tout are real. For example, if you're very close to it, it's noisy, it does draw power from the grid and that can compete for power with local communities. Some of the things people worry about are not real. Like water, water usage, that's not a real thing. Data centers have some, a reservoir of water that they run to cool stuff and they lose extremely little water and they don't pollute any water. So the water thing is made up. The other, the other harms that people tend to emphasize a little bit less are actually real. If you don't want data center near your, your house. That's, that's your right. You can, you know, I don't. Because I think data centers can go elsewhere. Like, you know, if, if New York won't build the data centers, Texas will, Alabama will. Places, will they bring benefits to the local economy. That, that can then be seen in tax revenue, local tax revenue. You can tax them. So I'm not so worried about local, about this data center nimbyism. First of all, that's my first take. My second take is that I believe, without solid evidence, so, you know, I don't have solid evidence for this one, but I believe that the, that the local NIMBYism over data centers is to some degree, to some substantial degree, not all, but to some substantial degree an expression of broader fears over AI itself. That people don't like the idea that AI will take their jobs, you know, basically take their jobs. I don't think most people think that AI will kill them yet I think people are mostly scared of jobs. And that fear manifests as an instinctive opposition to AI that, that filters through to opposition to local data centers. I think it's ineffectual opposition because banning local data centers in New York or whatever community won't actually reduce the amount of compute available to the AI industry. But I think that that's what's motivating it to some degree.

[Host (Prof. G)]

We'll be right back. And for even more markets content, Sign up for our [e-mail].

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[Noah Smith]

Hey, we can all see you two way mirrors.

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[Estad Herndon]

There's a civil war happening in the Democratic Party. And if there's one place that that's playing out most clearly, it's in Michigan.

[Noah Smith]

A crucial Senate primary battle in Michigan that could determine control of Congress in November. Congresswoman Haley Stevens and Abdul El say a progressive Democrat and a moderate Democrat.

[Estad Herndon]

In the end, it all comes down to the dreaded E word, electability. But in Michigan, one candidate is trying to turn the electability concept on its head.

[Dr. Abdul El Sayed]

If we think that voters walk around asking, where do I sit on some theoretical left, right spectrum, then in theory, the bulk of the voters are somewhere in the middle. The problem, though, is that that model hasn't really accurately predicted our politics for a very long time. If Michiganders wanted moderate, why would they have elected Donald Trump twice?

[Estad Herndon]

Dr. Abdul El Sayed is making the progressive case for America first, and he's trying to settle the Democrats ideological battle in the process.

[Dr. Abdul El Sayed]

This is about the many versus the money.

[Estad Herndon]

I'm Estad Herndon and this is America. Actually, catch us Every Saturday on YouTube or wherever you get your podcast.

[Host (Prof. G)]

We're back with Profg Markets. A trend that we have been watching and kind of following your coverage of is the fertility crisis in America. The fact that the US fertility rate fell to another record low in 2025. How big of a problem do you see this, this fertility crisis and what kind of impacts do you think this will have on the US Economy? Perhaps some impacts that maybe people aren't seeing or recognizing right now.

[Noah Smith]

It's going to be bad, but the bad is going to be, is going to slowly trickle into our economy in ways that it's hard to notice. It's not like there's some cliff we fall off and like, ah, you know, fertility is low. It's, you know, old people will clog the top ranks of companies and will be more, less nimble, less able to invest in the future, you know, less. Our companies will get just less creative and dynamic

[Estad Herndon]

slowly.

[Noah Smith]

You know, the debt burdens and tax burdens will go up and Social Security benefits will be cut. And, you know, there'll be this slow trickle of making it harder for, you know, just naturally harder for people to live because you have fewer workers supporting, greater number of retirees. People have to do more uncompensated elder care. People will have to pay more taxes to support elder care. You'll see immigration become actually more contentious because on one side you'll see people say we need to bring in more immigrants for labor shortages. On the other side, you're going to see like immigrants will go up faster as a percent of Population because we're not reproducing local people as fast. And so that's going to freak people out more. So you're going to see immigration become more contentious even than it already is. So that's going to be difficult. There's just all these problems you get from a low TFR that trickle in slowly and subtly and you don't see them like, oh my God, disaster. It's corrosive.

[Host (Prof. G)]

Do you think that this is the kind of thing that will force us to sort of rewrite how we think about Social Security, how we think about taxation? Like, is this one of those era defining events that may change the way we organize our entire economy?

[Noah Smith]

Yes, but I think it's less of an event than a trend. It's going to happen slowly. We already should have realized there's something very wrong with the pay as you go method of Social Security because as Paul Samuelson famously proved in his paper about dynamic inefficiency back in, I think the 50s or early 60s, Social Security, a pay as you go system like Social Security is efficient if and when you have a growing population, when you have a very slowly growing population or shrinking population in the long term, Social Security is dynamically inefficient. It has big economic problems. And so that's hitting already. That's hitting already. And so we needed to shift to a fully funded system. We can't now because expensive one time shift. And instead we're going to have to have constant bruising political battles over benefit cuts and retirement age raises and lifting the cap on taxes and making the system more redistributionary and all these things we're going to have all these fights over. There's no way to avoid these fights. And it's baked into our system. And so yes, it's happening, but it won't be a thunderbolt that happens all at once.

[Host (Prof. G)]

Is the best solution, in your view, some form of redistribution? Is that what we need to all get on the same side on? When you describe these kind of political debates that are inevitable, is that the main thing?

[Noah Smith]

It's absolutely part of what we need. Because when you have benefit cuts, that hurts. I mean, if you're rich and you get your Social Security benefit cut, benefits cut, do you care?

[Interjecting Speaker / Co-host]

No.

[Noah Smith]

But if you're poor and you get your Social Security benefits cut, you starve, like that's all you had. And so obviously the more we cut benefits, which we'll need to do to maintain the solvency of the system, the more redistribution we'll need to do to prevent Human suffering. So it, the insolvency of Social Security creates a greater need for redistribution across income gaps. And so I think that's absolutely one thing we need to do. We obviously need to be looking for ways to boost the fertility rate and to continue bringing immigrants without, you know, freaking out, freaking people out. We need to do both those things, especially high skilled immigrants, you know, add lots and lots and lots to our revenue, to our coffers. They're a huge fiscal plus. So we need to look at how to do more of that, which we're really not doing right now. It's the opposite of what we're doing right now. And we need, so we're going to need more redistribution. We're going to need to, to tighten our belts and do more redistribution at the same time in order to keep the system solvent and keep it supporting old people and have old people not be synonymous with poor people as they used to be. And so, and at the same time, we need to be looking to address the root causes of the problem here for the long term.

[Host (Prof. G)]

What would you say to someone who believes that redistribution is veering on socialism? People who say, I mean, obviously you've, we've seen the wealth tax proposals, we've seen the Billy billionaire tax proposals which are kind of way over here on the extreme end of things. And a lot of people say that's not the right direction. And I think those arguments might have some merit. But there are also arguments that, you know, increasing taxes, redistributing in, in and of itself is not the right path, it's not the right solution. We're kind of waiting on government, waiting on some centralized system to solve all of our problems. To the people who take that view, what is your response to them?

[Interjecting Speaker / Co-host]

My response is what's your, what's your alternative?

[Noah Smith]

What's your, what's your better idea? They have nothing. No. Nobody who just like, well, that would be socialism has any, says any alternative other than just like, you know, more money from my bank account.

[Ed]

I think we're using the words incorrectly though. Socialism is supposed, it used to mean at least government controls the means of production, which just doesn't have a good track record. But. And then when you ask where does it work, they'll point to Northern Europe. I would argue Northern Europe in many instances is more capitalist than we are. I think what most socialists today really mean is a capitalist economy that has a stronger social safety net, more progressive taxation and more investment in social services. It feels as if a lot of this argument is a inefficient argument around semantics that those of us who think of socialism as east versus West Germany, North Korea versus South Korea, Soviet Union versus, you know, or U.S.S.R. i mean, the 50s and 60s here had much higher tax rates, much more public infrastructure, investment, great society. But we didn't call it socialism back then. We just called it healthy capitalism. Isn't a lot of this words, it's all words.

[Noah Smith]

Yeah, you're exactly right. Like, the word socialism isn't magic fairy dust that you can sprinkle on something to like, make it go away like that, that, that might have worked for like a few years in the 1980s, but. But that dog will not hunt now. And so you're right, it is, it is totally semantic. And that's, Isn't that just. Socialism is, you know, like there's a shrinking and rapidly aging cohort of people for whom that sort of argument carries any weight at all.

[Ed]

Yeah, you're talking to one of them.

[Noah Smith]

But I'm glad that you, you, you, you and I are on the exact same page about, you know, the idea that ownership and control means of production and is a very different thing from, you know, redistribution, like social democracy, kind of the, the stuff like Sweden does. Like, if you look at the Scandinavian countries, those countries are less regulated than we are.

[Ed]

That's exactly right.

[Noah Smith]

They're more capitalistic than we are on the production side. And then on the redistribution side, they do a lot more. And so is that more or less socialist than us? Like, it is a totally semantic argument. And I wish people would just stop, like, saying, well, isn't that socialism? And they soon will because that, you know, like, that's going away.

[Host (Prof. G)]

We need to come up with a new term.

[Ed]

I thought what George Bush did was pretty or w. Compassionate conservatism. Is there a room for compassionate capitalism Woke?

[Noah Smith]

You're talking about sloganeering, and I'm not necessarily a good sloganeer.

[Ed]

I want a bumper sticker, Noah.

[Noah Smith]

I'm not good at bumper stickers, except

[Interjecting Speaker / Co-host]

for maybe silly ones.

[Noah Smith]

But then, But I think that what I would, I would just use the word redistribution to use a word to mean what it means instead of using, tying it to a whole package of ideologies and stuff by calling it socialism, just call it redistribution, which is what it is. Call things what they are. Use, use, you know, terminology to mean specific, useful things.

[Host (Prof. G)]

My, my final question, if you know it. Is there any economic trend that you're seeing today that makes you optimistic about America, that makes you bullish on America or the world or humanity? At large.

[Estad Herndon]

What are some.

[Noah Smith]

I mean, like, obviously, AI is the big reason for optimism, productivity growth. We're already starting to see some productivity growth. That's probably from AI, we're not sure. Without apparent job loss. All these people thought AI was a job destroyer and a human remover. And so far it's turning out not to be that. Like, you know, there's a few occupations that are under stress and under pressure from, from AI, but that's true of any technology. That was true of machine tools. That was true of anything that improved our prosperity in the past. That now we're not worried about is true of databases and computers. It was true of the Internet. It's true of everything. And AI so far, like our, our job markets, you know, there's less hiring and less firing. What. How corporations hire and fire people is going to change. I think we'll go more toward a Japanese system where we have, like, salarymen doing generalist jobs for companies and like, you know, instead of highly specialized things and a whole lot more independent entrepreneurs, we're seeing a lot more independent people start small businesses. There's a positive trend. We're just seeing a massive surge in dynamism, a surge in business formation. Individuals can start businesses more easily than ever before. I have my, my substack is a. Is a tiny business. You know, it is a. Is an S corporation. And so we're seeing a ton of that. And we're seeing no big negative effects so far of AI on aggregate employment outcomes. And yet we're seeing apparent productivity acceleration. And that is great. That's a much better outcome than we could have, than people would have hoped for even two years ago, even one year ago, even now. It's better than what people think is happening. People think AI is out there destroying jobs, and so far it's not. And so that's something we need to be more vocally acknowledging of. We need to say, like, look, guys, AI is not destroying jobs, and yet productivity has accelerated. And all these people, there's all this dynamism. All these people are starting these small businesses. That's a big reason for optimism.

[Host (Prof. G)]

We will need to have plenty more conversations in the future, but for now, I will have to wrap us up. Noah Smith writes the no Opinion blog covering economics, technology, geopolitics, and culture. Previously, Noah was an Economics PhD student at the University of Michigan and assistant finance professor at Stony Brook University and an economics columnist for Bloomberg Opinion. He left Bloomberg in late 2021 to blog full time for more of his work. Head to no opinion. That's Noah. His name Pinion Blog to subscribe to his newsletter. Noah, thank you so much for joining us today and thank you to our live audience for tuning in. We will see you all next time.

[Noah Smith]

Yeah, it was great to come on and please have me back anytime.

[Ed]

Congratulations on your success, Noah.

[Host (Prof. G)]

This episode was produced by Claire Miller and Alison Weiss and engineered by Benjamin Spencer. Our video editor is Jorge Carty. Our research team is dan Shalon, Kristen O' Donoghue and Mia Silverio. Jake McPherson is our social producer, Drew Burrows is our Technical director and Catherine Dillon is our Executive producer. Thank you for listening to Prof. G Markets from Prof. G Media. If you liked what you heard, give us a follow up and join us for a fresh take on markets on Monday. As the world turning A business shouldn't

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[Noah Smith]

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[Host (Prof. G)]

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