The AI Race to Regression

The Open AI chatGPT logo on a phone

The AI race has been all the rage, but what if we were racing ourselves straight into regression?

OpenAI’s ChatGPT-5 is extremely powerful; however, it’s less user-friendly than its predecessor and is optimized for institutional users. Industrial and research applications are where the real power of AI lies. So, what happens when those energy-intensive data centers begin to falter?

Well, as globalization breaks down, that faltering is going to become a very real concern. Without an ecosystem that produces and shares all of the necessary components to make these AI behemoths run…we could see a technological regression that threatens the future of AI as we know it.

Prefer to read the transcript? Click here

Transcript

Hey everybody, Peter Zeihan here coming to you from McCurdy peak. Well, the actual peak is there. Anyway, Peter Zane Company from Colorado. Today we’re taking another question from the Patreon page. Specifically, can you please explain to me this new space age that we’re in the race for artificial intelligence, and what we should look for, what we should worry about? 

Well, let’s start by saying that most of the things that people are talking about with AI are generally, not quite on the mark, for example, a lot of folks think that, OpenAI, that’s the premier artificial intelligence company in United States, that their new program chat, GPT or 5.0, which is supposedly an upgrade, is actually a significant downgrade. 

They find it not as user friendly, not as personable, not as complete. That’s for personal users. AI affects potentially thousands of different applications, and how most people interact with artificial intelligence is in some sort of first person single seat. interface. Like what you get on your phone or your laptop. 

I mean, I’ve got that way too. And the jump from chat GPT four to GPT five was not designed for your single user. It was designed for people who do code for people who designed drugs. It’s designed to bring a huge amount of processing power to things on the back end to basically recreate something. So the institutional users, the design users, they’re actually finding ChatGPT all kinds of fun. 

And some Altmann, who is the CEO of open AI, is going back and kind of taking some characteristics from ChatGPT for to put it in the chat, GPT five, in order to make everybody happy. So that’s all going to work out. Here’s the problem. Software versus hardware. If I’m going to really sum it up, it’s that 

Chat GPT for the algorithm that we all found so groundbreaking really only took up about ten terabytes. And you could easily carry that on thumb drives in your hand. Chat GPT five, more advanced, is at least twice that, probably three times. But OpenAI is not saying. So we don’t know that number for sure. 

The point is, in terms of the raw memory required to make the AI function, it’s really not that impressive. And so if, the corporate espionage or an act of benevolence, OpenAI were to lose control of the algorithm and it got out there in the wild, so to speak, it really could be used by almost anyone. What makes a AI function in the way that we think of it today? 

Not this Skynet future thing, but how it is now requires massive amounts of processing power at data centers. The largest data centers that the world has ever seen are needed in order to deal with the inflow of requests that come in, run the algorithm and spit out the results. Which means that the limiting factor, for the moment, in artificial intelligence isn’t the software, it’s the hardware. 

And this is where we have a really big problem, and it’s not that far away. The ability to make the high end processing chips that Taiwan is famous for, requires, 100,000 steps, 30,000 pieces, 9000 companies, and they’re scattered around the world. The single biggest concentration is then the United States, which is something Americans conveniently forget when they’re talking about sovereignty. 

Number two, concentration is on the Taiwan centric zone. The single most important company is in the Netherlands, but it has facilities in Germany and in Austria and in California, in Japan. But you’re never going to be able to do the chips at all without all of these steps. And a lot of them are single point failures. 

So if you have any degree of globalization, it doesn’t matter really what the countries. It falls out of work. We can’t make them at all. And for the chips that we already have, life span when they’re in a data center is typically in the 3 to 6 year range. So when we get to the point where we realize that we can’t make the chips, we’re going to have a bit of a scramble to see who can control what’s left. 

And then the ability to use AI will shrink from something that you can all have on your phone to simply the handful of entities, whether governments or corporations, that are capable of having their own data center so they can run by themselves and that will be it. Until we reinvent the entire ecosystem and what we have been seeing with most government efforts around the world, including the United States, to reassure the sort of manufacturing it only focuses on the fabrication facilities, which is what is in Taiwan. 

It ignores the design, it ignores the material inputs, it ignores the photo mask, it ignores the wiring, ignores everything else that goes into a successful chip, much less the downstream stuff like testing and packaging that ultimately makes the stuff that ends up in a data center. No one, to my knowledge, is putting any effort into actually bringing the entire ecosystem under one roof, and I honestly don’t even think it would be possible anyway. 

There are too many pieces. There are too many players. And and if you’re looking at the United States, there are not enough technicians that are capable of doing it because we already have record low unemployment levels. So we are in a moment right now where AI is possible with ChatGPT 5.0 and all the rest that will not last. 

And in the not too distant future, we are going to see a technological regression as we lose the ability to make the hardware. And since it took us 60 years to figure out how to do that in the first place, it’s not something that we’re going to do in a season is going to take a mastery. Industrialization process of different parts of the world to do different things, coming together in different ways. 

And that is something that I am not looking forward to. But we’re going to see at the beginning of that within this next decade.

Will AI Steal My Job?

The world of international trade is constantly evolving, and it’s important to keep up with the latest trends and developments. From emerging markets to geopolitical conflicts, there are many factors that can impact global trade, and we’ll be discussing some of them today. So, grab a cup of coffee, sit back, and let’s dive into this exciting and ever-changing topic.

Go ahead and watch today’s video before you read the rest of the newsletter…I promise you’ll understand why that first paragraph was so painfully awkward!

If you watched the video, you can probably see why I’m not worried about my job security. While AI is going to change the way we do a lot of things, it still needs some time before it’s cracking the kind of nuanced jokes I’m famous for.

However, there are quite a few spaces where AI is already disrupting the job market, and if you don’t want to be fighting the machines…it may be time to adapt or pick up a new trade.

Prefer to read the transcript of the video? Click here

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TRANSCIPT

Hey Everybody. It’s Peter Zeihan. And today we’re going to talk about the future of global trade. Now the world of international trade is constantly evolving, and it’s important to keep up with the latest trends and developments. From emerging markets to geopolitical conflicts, there are many factors that can impact global trade, and we’ll be discussing some of those today. So grab a cup of coffee, sit back and let’s dove into this exciting and ever changing topic.

The world is changing fast and technology is a big reason why. Now you’ve probably heard about automation and A.I. and how they’re really shaking things up in the business world. I mean, who knew robots would be better the packing boxes than humans? Now we just need to make sure they don’t unionize. One thing we’re seeing is the emerging markets like China and India becoming major players in global trade. They’ve got big populations and are growing middle class, which means they’re buying more stuff. And that’s great news for businesses that want to sell to them. So if you’ve got a product, it’s hot in India, get ready to see those profits skyrocket. Just make sure you have a good recipe for curry because you might need to impress some clients. But there are some challenges to. The United States for example, it’s become more protective of its industries, which has led to trade tensions with other countries. And Brexit has made things a little bit more complicated between the UK and Europe. I mean, who doesn’t love a good geopolitical drama, right? And then there’s the going ons of the Ukraine conflict. Now I know what you’re thinking. Wow, this is getting heavy. But hey, on the bright side, it’s not all doom and gloom. You can still order your favorite Ukrainian vodka online. You have it delivered right to your doorstep. So let’s raise a glass to international trade, even in times of conflict. So what does all this mean for the future? Well, it’s hard to say for sure, but one thing’s for sure, we are in for a wild ride. And as a geopolitical strategist, I’ll be keeping a close eye on things and I’ll share my insights with you as we navigate this ever changing world. Thanks for tuning in. And remember, laughter is the best medicine, even when we’re talking about serious topics.

Okay, now, that was not my words. That is chat GPT. Who was asked to write a script? For me, it took about 60 keystrokes and it came up with that. Now, from a geopolitical analytical point of view of my own, it’s out of crap. It’s at best freshman, not even sophomoric. But remember that GPT is barely into beta testing right now.

And the fact that it was able to analyze what I’ve written and said in the past and pick up on my cadence and insert the odd joke, even if they were just horrible jokes, is an indication of what’s coming down the pipe. And for folks that don’t require my depth of knowledge in order to tease out things like the caveats and the long term forecasts, you got to admit that just kind of splattering that on the wall like spaghetti for a first try was disturbingly good.

Now this isn’t going to disrupt every industry, but now that the context and the grammar and the sentence structure is something that AI can do, we’re going to be seeing this get more and more mature as it builds in more information now from my point of view, as somebody who’s authored a few books, copy editors are in trouble now because this thing was flawless from a grammatical and copy editor, point of view and again, it generated this thing in less than a second. But when it comes to drawing connections between different topics or, say, diving into demography, all it knew was to say the word demography. And all it did was to say the word trade and protectionism. It doesn’t have a deeper understanding of what those mean in a broader context. We’re in a human context. So at the pace we’re going, my job is still good for probably the rest of my professional career. But for folks who are dealing with low value added white collar work or even mid value, where the strength is not the cross context and the cross disciplinary experience, but simply running the numbers. And I’m thinking here about basic accountants. This is a pretty problematic innovation for you. So the trick will be for folks who are a little lower on the value added totem pole to figure out how to use this technology themselves to leverage themselves among their peers. Using this, I probably could put together too much of a framework, but most people are not in my field. And in terms of teaching someone English, oh my God, what a great tool. So is it the end of the world for all of us? No. Are the machines rising up? Know clearly the value add in this system is still relatively limited, but it does have the capacity to form complete sentences in paragraphs and thoughts now, and as it gets better, it’ll start hanging ornaments on those in a way that we’ve already start to challenge those low and mid-level white collar jobs.

Now, the way the economy is evolving globally anyway, we’re going into a system where there’s more breakup. And as capital costs get higher because of the retirement of the baby boomers, we are seeing different industries suffering benefit in different ways. So for the tech industry, for example, having really, really cheap capital, a lot of people in their twenties and thirties is the lifeblood, and that’s not the world we’re in. And so we’ve seen significant layoffs. If they can’t maintain their output without inputs that are of lower cost. But as the world of globalized manufacturing is moving around and countries like the United States that still want stuff are going to have to build it themselves. Well, higher capital costs aren’t great for that. But if you are building something real in an environment of shortage, it’s relatively easy to get capital in even workers. What we’re seeing now is kind of the revenge of the real, as you will, as intangible goods no longer have the demographic and economic and capital situations that they need to thrive. But if you want to build industrial plant to build a real physical product, all of a sudden in relative terms, it’s gotten a lot easier because the Googles and the Facebooks of the world are not sucking all the oxygen out of the room and all the capital out of the markets. It’s part of the transformation.

Where Chat GPT is going to push in the opposite direction of a lot of those trends, which means that all those white collar workers who have done really, really well in the last 20 years suddenly have some competition. At the same time, that base inputs, capital and labor for their industry are starting to dry up somewhat. It’s a real reorientation, and if you’re in the bottom half of the income scale, you’re more likely to be blue collar.

You have a really, really good decade ahead of you. Okay, that’s it for me. I’ll see you guys later.