SITALWeek #426

Welcome to Stuff I Thought About Last Week, a personal collection of topics on tech, innovation, science, the digital economic transition, the finance industry, and whatever else made me think last week.

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In today’s post: Google's Gemini is out and it has some advantages over ChatGPT4, including being able to act as your phone assistant; the absurdity of accelerating spending on leading-edge chips by an order of magnitude; some ramblings on virtual reality; the potential to create virtual patients for clinical trials; The Curse and Falling Up; the youngest Boomers turn 60 as childless couples grow their wealth; unofficially, China is still by far the largest US trade partner; and much more below. 

Stuff about Innovation and Technology
AI Election Influencers Have Left the Barn
The FCC has outlawed robocalls with AI-generated voices in an attempt to prevent election influence. The real AI-influencer election battle will, however, take place on social media and via private messaging apps – and thus largely play out beyond the reach of regulation. The next US election contestation may be pinned on claims that people voted “under the influence” for a candidate they otherwise would not have supported. 
 
Leading-Edge Chatbots: N=2
Google’s Gemini Advanced launched last week. It’s a souped-up version of my favorite chatbot (formerly known as Bard), and I recommend people check it out if you haven’t already. If you have a Pixel phone, you should also be able to download the new Gemini app from Google, and then you can set it to be the default assistant on your phone (I am finding that to still be a bit buggy). Ethan Mollick has a good overview here that concludes: 
Gemini shows that Google is in the AI race for real, and that other companies besides OpenAI can build GPT-4 class models. And we now know something about AI that we didn’t before. Advanced LLMs may show some basic similarities in prompts and responses that make it easy for people to switch to the most advanced AI from an older model at any time. Plus, GPT-4’s “spark” is not unique to OpenAI, but is something that might often happen with scale. We don’t yet know if models get “sparkier” and more AGI-like as they get larger, but I suspect we will find out.
As I've noted in the past, I believe chatbots will be the primary user interface going forward, replacing smartphone and other operating systems.
 
Altman’s Trillions
Sam Altman reportedly plans to build out semiconductor manufacturing capacity to fuel the AI revolution. According to the WSJ, Altman is looking to raise as much as $5-$7 trillion (that’s trillion with a "T"), to build factories to churn out GPUs and other AI-focused processors. For context, the entire semiconductor industry spends ~$150B/yr in capex, with a little more than half of that going to equipment. Altman’s plans, even if he deployed that capital over ten years, would be multiples more than the current entire semiconductor industry (not to mention, the $150B supports diverse end markets beyond AI including memory, analog, microcontrollers, etc.). Said another way, Altman wants to spend somewhere in the neighborhood of 20x TSMC's annual capex of ~$32B, which is a relevant comparison given TSMC builds almost every AI processor globally. Without any additional growth, the chip industry is already looking at lead times of 12-18 months for key pieces of fab equipment, like lithography machines from ASML. Altman’s plan would likely call for the purchase of 10x as many of these machines as the rest of the industry combined. We’ve previously discussed the friction encountered when interfacing with the slow analog gears of the economy, and manufacturing necessary hardware is only one such example. There are further gating factors such as engineering availability, an issue that has slowed TSMC’s global expansion to date. Last week, I speculated on whether a business model existed that could support the billions in incremental capex on AI; however, I don’t believe I currently have the imagination to underpin trillions of dollars. While it's likely impossible to expand chip capacity to that extent, I think it's more likely AI will create many ways to make itself require less processing power over time. If we see a scenario where the demand is there for 10x the number of chips, but those chips cannot physically be made, then AI would likely be reserved for the people or companies with the most money. Thus rendering popular tools like GPT4 or Gemini unavailable to the masses.
 
Bringing the Virtual to Reality
Disney’s $1.5B investment in Epic to bring Disney content to the Fortnite universe is underpinned by the game-maker’s Unreal engine. Disney’s cinematic directors were early users of Unreal. Even as far back as 2020, Jon Favreau was using the gaming engine to create The Mandalorian. As I wrote last week, we seem quite close to being able to create virtual worlds that are persistent and interactive. Integrating Unreal, AI, and VR/AR into the movie-making process at Disney could allow future viewers to experience their own narratives. This idea – ripped from the pages of Snow Crash and Ready Player One – was once called the metaverse, but that term slipped out of style after a failed hype cycle a couple of years ago. Regardless of what you call it, we will soon experience a fundamental shift in human storytelling as creators and artists move from linear, 2D thinking to full spatial computing and immersive entertainment. The potential addictiveness of this new type of entertainment is frightening. I am hopeful that current VR goggles morph into all-day wearable augmented reality glasses – I’d much rather bring AI/virtual elements into reality than transform reality into something entirely virtual. 
 
That sentiment – my hope/optimism for mixed reality triumphing over complete VR – brings me to the latest post from my favorite technological essayist, Jaron Lanier, who recently penned a reaction to the Apple VR goggle launch in The New Yorker. Lanier has a terrific insight on why VR gaming hasn’t taken off like many (including myself) thought it would: “There are many reasons why V.R. and gaming don’t quite work, and I suspect that one is that gamers like to be bigger than the game, not engulfed by it. You want to feel big, not small, when you play.” Lanier also expects the killer apps will yet land for mixed reality, and he believes they will either be practical, short-term, and task-based (“a scattering of wonderful niches”), or truly wild and weird, such as mapping your body to that of a lobster or playing with the flow of time (yes please!). Whatever it is, it’s unlikely that VR’s killer app will just replicate what we do on phones/laptops via goggles that isolate us from the rest of the world. Lanier offers his views on technology and our relationship with it:
It is impossible to judge technology without a sense of its purpose—and its only plausible purpose is to benefit people, or perhaps animals, or the overall ecosystem of the planet. In any case, if we pursue technologies that make it hard to delineate the beneficiaries—for instance, by blending brains into robotics not to cure a disease but just because it seems cool—then we make the very idea of technology absurd. The central question of the technological future is how to identify the people who are supposed to benefit from technology, especially if they seem to have melted into it. If people aren’t special, how can we act in a way that benefits people? We can’t. The principles of ethics, design, and even technology itself become nonsense. What can that specialness be? It must be something that is not technologically accessible, since technology expands unpredictably. It’s a little mystical. The definition of people must be one of apartness. We must now put people on pedestals, or they will drown...
Lanier also wonders – after remarking on the relevance of the (predominantly young male) “fantasy of infinities” that dominates so many visions of new technologies – whether VR might finally break humanity:
And so another urgent question is whether people can enjoy the storied reality of finitude after coming down from the high of fake infinity. Can being merely human suffice? Can the everyday miracle of the real world be appreciated enough? Or will the future of culture only be viral? Will all markets become Ponzi-like fantasies? Will people reject physics forever, the moment we have technology that’s good enough to allow us to pretend it’s gone?
To conclude, here’s one more philosophical note from Lanier: “Life within a construction is life without a frontier.”

Miscellaneous Stuff
Clinical Twins 
With the potential for significantly accelerated drug discovery as AI advances in capabilities, a major gating factor will be the analog process of conducting clinical trials. One company that recently raised venture capital is Unlearn, which “uses machine learning to create digital twins of clinical trial participants before being randomized in a controlled trial. The digital twin can provide researchers insight into the participants' health outcomes. The startup pitches its technology as a way to run smaller clinical trials more quickly, since researchers can find fewer participants for the control group.” (As participants’ digital twins will also serve as controls). I’ve been skeptical of the digital human twin concept in the past given how complex the body is, but it is possible such AI-simulated controls will be able to fast-track the process of identifying which drugs have the best shot at success in larger clinical trials. 
 
Falling Up
I’ve been wanting to write about The Curse (streaming on Paramount+) since I saw the first episode, but I patiently waited until the final episode aired a few weeks ago to try and collect my thoughts. However, I’m still struggling a bit to piece my views together. It’s certainly the unusual show we expect from the minds of Benny Safdie and Nathan Fielder. I’ve previously written about Fielder’s reality-bending creations (see Analog VR), noting his previous show, The Rehearsal, “is ultimately like an analog version of VR – an attempt to simulate a complex situation in realistic detail.” In some ways, I cannot really recommend anyone watch The Curse unless you want to put yourself through the same torture of trying to comprehend it all. Director Christopher Nolan recently called it an “incredible” show “unlike anything I’ve ever seen on television before”, declaring that the “tone is the star” of the show (not unlike Twin Peaks in the early 1990s). The purported concept of the show is a behind-the-scenes look at a couple trying to launch a HGTV home renovation show, but that’s a simple pretense for much more. I’ve read a lot of reviews and watched all of the creators and actors walk through every episode in various interviews, and there are as many interpretations as there are opinions on it. Director and co-creator Safdie responded to questions about the show’s ending by saying: “the way that I'd like to leave it is if you have a drawer, for example, and there was no handle on the drawer how would you open it? You know, would you tip it forward so that the drawer falls out? Would you use a knife to get into the crack and open it? Maybe you'll take some tape and stick it to the front and then pull it out that way. You know, you'd come up with a lot of different ways to open that drawer and what you'd find inside is the same information, but the way that you got that information was your own. If you put a handle on the drawer you just open it right up and you find your information so you lose a little bit of that process and that kind of searching which I think is important for this.” (This quote comes from an interview discussing the season finale, so if you have not watched the show and plan to, I recommend not watching that interview yet; likewise, I won’t discuss the fascinating character studies and perversions of behavior that lead up to the finale.) What attracts me to the show, despite its often unbearably uncomfortable plot/characters, is the same theme I am repeatedly drawn to: playing with reality. It seems that the human brain experienced a paradigm shift with the advent of the motion picture, as we could, for the first time, stare at someone acting out real situations without them knowing or staring back at us. This element of voyeurism is at the heart of reality TV, and it’s certainly a key element of The Curse. It’s one thing to watch reality TV, it’s an entirely different layer of the onion to spy on the lives of reality-TV creators. The Curse is filmed in such a way that you, the viewer, feel as if you’re entirely concealed so that no one can watch you stare and react. It’s truly like watching someone who has no idea they are being watched. As I concluded in Analog VR: “That is precisely what VR/AR will allow: realistic simulations of real-life situations with seemingly real people played by AI actors.” This is in part what The Curse felt like to me – a glimpse at our ability to eavesdrop on reality as curious voyeurs, and it’s directly tied to the above section on Disney’s investment in Epic and Lanier’s comments on VR. There’s a children’s poem I can’t get out of my head since I finished the show. It’s Falling Up by Shel Silverstein:
I tripped on my shoelace
And I fell up–
Up to the roof tops,
Up over town,
Up past the tree tops, 
Up over the mountains,
Up where the colors
Blend into the sounds.
But it got me so dizzy
When I looked around, 
I got sick to my stomach
And I threw down.

Stuff About Demographics, the Economy, and Investing
Demographic Surf Report
The youngest Baby Boomers turn 60 this year, which brings the generation to the cusp of their peak retirement numbers. This steady loss of workforce is no doubt contributing to the low unemployment rates, as retirements outnumber new labor market entrants. The rise in teen employment I mentioned last week is a helpful buffer, on the margin. Once retired, consumption tends to decline, which could weigh on the overall ability for the US economy to grow. Yet, increased demand for healthcare and household assistance will be a big driver of demand for automation, robotics, and AI in the coming years. While we might expect Boomers to steadily sell stocks (people over 55 own 80% of US stocks) and strain Social Security as it pays out more than it takes in from the generationally smaller working-age populations, we also need to consider the extreme amount of wealth the Boomers have accumulated in home equity and other assets. It’s possible they will remain significant drivers of consumption across the economy. The other big impact on overall economic growth comes from Millennial and Gen Z couples. BI reports that although couples without kids (known as DINKs – double income no kids) are growing faster than couples with kids, couples of all types are seeing their net worths rise at a faster pace. Although, historically, families have driven an outsized portion of consumption, today’s DINKs have net worths over 50% higher than couples with kids. There’s typically never any strong conclusions from demographics, and the above stats highlight how complex the interplay of intergenerational trends can be. However, there are likely some multi-year currents to ride based on these shifting age groups and family dynamics, so let me know if you spot a good wave out there.
 
US Imports: Mexico > China?
The US government’s import stats suggest that imports from Mexico surpassed those from China for the first time in 20 years. While imports from Mexico were only up modestly, imports from China dropped 20%. According to the NYT, the drop is largely due to a decline in consumer appetite for Chinese manufactured goods following excess pandemic demand, although the level of imports is below where it was pre-pandemic, and, given inflation, the real volume might be even further below those levels. However, these “official” numbers appear to ignore the de minimis imports of under $800 in value. As I mentioned in last week’s post on Shein and Temu, this is a large and growing piece of trade with China. The under-the-radar imports could be nearly $200B, and if you assume a meaningful portion of these would qualify as goods imported for purchase in the US, then I suspect China is still by far the largest US trade partner.

✌️-Brad

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