About this Video

• Video Title: Dit zijn de gevolgen van de wereldwijde AI-wedloop volgens econoom Andy Xie | VPRO Tegenlicht
• Channel: VPRO Tegenlicht
• Speakers: Andy Xie
• Duration: 00:21:03

Introduction

This VPRO Tegenlicht video features economist Andy Xie discussing the global AI race, contrasting the US and Chinese approaches, and predicting the consequences of the current financial bubble fueled by AI investment. Xie highlights the differences in AI development philosophies and their potential impacts on global economies.

Key Takeaways

• US AI Focus: The US prioritizes developing highly advanced, general-purpose AI (like large language models), aiming for a kind of "AI god" residing in Silicon Valley, even if it's not immediately profitable. This approach involves massive investment, often without immediate returns.

• Chinese AI Focus: China focuses on practical, real-world applications of AI that improve production and efficiency, demonstrated by DeepSeek's integration into electric vehicles. This approach prioritizes immediate usability and cost-effectiveness.

• The AI Bubble: Xie argues that the current AI investment boom is a bubble fueled by excessive monetary policy, particularly in the US. He suggests this bubble will eventually burst, potentially leading to significant economic and political consequences.

• DeepSeek's Impact: The emergence of DeepSeek, a Chinese open-source AI, challenges the dominance of US AI companies like OpenAI and NVIDIA, primarily due to its superior efficiency and lower cost. This could significantly shift the global balance of power in the AI industry.

• Global Implications: Xie predicts that the burst of the AI bubble will disproportionately impact the West due to its high costs, while the global South (with its larger population and lower price sensitivity) will benefit from the more affordable and practical Chinese AI approach.

Xie supports his claim of an AI investment bubble with several pieces of evidence:

1. Massive, unprofitably valuations: He cites examples of AI companies valued at hundreds of billions of dollars despite lacking profitability. OpenAI is specifically mentioned as receiving massive funding for experimentation without generating profit.

2. Speculative investment: He points out that many AI companies are essentially buying and reselling chips, creating inflated valuations without genuinely contributing to AI development. NVIDIA is used as a prime example, where profit margins are greatly amplified, leading to a massively inflated company valuation.

3. Easy access to funding: He highlights how easily companies can secure funding, stating that "everyone with a PowerPoint can raise billions." This suggests a climate of excessive speculation rather than sound investment based on real value.

4. Focus on hype over functionality: He emphasizes that the success of AI investments currently depends more on maintaining hype and securing funding than on the actual functionality or profitability of the AI technology itself. The goal is often a quick exit for investors, rather than long-term, sustainable business.

DeepSeek challenges US AI dominance and their reliance on advanced chips in several ways:

1. Superior Efficiency: DeepSeek is described as being ten times more efficient than OpenAI's models, requiring significantly less energy and thus, making it far cheaper to operate. This directly undermines the cost advantage previously held by US companies reliant on expensive, high-powered chips from NVIDIA.

2. Open-Source Nature: DeepSeek's open-source nature means it is accessible to a wider range of users and developers, reducing reliance on proprietary technologies and the high costs associated with them. This democratizes AI development, making it less dependent on the dominant players.

3. Practical Application: Unlike the US focus on general-purpose, sometimes impractical AI, DeepSeek's integration into real-world applications, specifically electric vehicles, showcases its immediate utility and market potential. This demonstrates a viable alternative approach that bypasses the need for the most cutting-edge, and expensive, US-made chips.

4. Market Share Impact: The immediate success of DeepSeek (being #1 in the App Store) and its integration into a significant portion of the Chinese electric vehicle market demonstrate a direct challenge to the market share previously controlled by companies relying on the expensive NVIDIA chips. The drop in NVIDIA's stock price upon DeepSeek's release is cited as further evidence.

Xie predicts several economic and political consequences from the bursting of the AI bubble:

Economic Consequences:

• Price Crisis Resolution (in Wealthy Nations): The burst will likely lead to a decrease in the cost of living in wealthy nations, as the inflated asset prices (particularly housing) will fall. This would alleviate the current affordability crisis, though it comes at the cost of reduced wealth.
• Reduced Wealth: People will experience a reduction in the perceived value of their assets.
• Global Impact: The bubble's burst in the US will likely trigger a global crisis because of interconnectedness of global finance.

Political Consequences:

• Scapegoating: There's a risk that countries will blame each other for the economic downturn, possibly leading to increased international tensions. China is specifically mentioned as a potential scapegoat.
• Social Unrest: The significant economic disruption could cause social unrest, particularly in countries where a large portion of the population is already struggling financially. The US, with its high levels of national debt and financial inequality is highlighted as especially vulnerable.
• Political Instability: The economic turmoil could lead to political instability and shifts in power dynamics, both domestically and internationally.

Xie emphasizes that while the bursting of the bubble will lead to some economic relief in terms of affordability, it will also cause significant wealth reduction and potentially trigger major political upheavals.