Everyone Hates AI | Animal Spirits 453

Episode Overview

• This episode explores the "AI Doom" economic thesis, debating whether artificial intelligence will create a crisis of mass unemployment and collapsed demand or usher in a new era of productivity and wealth.
• The hosts analyze the current stock market landscape, specifically the rotation away from the "Magnificent 7" tech giants into the broader market, and why this might signal a healthy "soft landing" rather than a crash.
• A significant portion of the discussion focuses on the disconnect between consumer sentiment (which is negative) and actual spending behavior (which remains robust), challenging the "vibecession" narrative.
• The conversation also covers the localized fracturing of the housing market, the risks in private credit liquidity, and why the tech sector's small labor footprint buffers the broader economy from tech-specific downturns.

Key Concepts

• The "AI Doom Loop" Thesis A viral research piece posits a negative feedback loop where AI successfully cuts costs by replacing white-collar workers, but inadvertently collapses the economy. The logic is that while corporate margins initially spike, the mass unemployment of high earners destroys consumer demand, leading to a recession despite technological abundance.

• Technological Displacement vs. The "Lump of Labor" Fallacy The debate centers on whether AI is different from past innovations like electricity or the internet. The skeptical view argues that technology historically creates more jobs than it destroys by eliminating drudgery. The pessimistic view argues that because AI targets cognitive labor and happens at 10x the speed of the Industrial Revolution, displaced workers may not find new high-value roles fast enough to prevent social upheaval.

• The Market Efficiency of Narratives Stock prices are currently moving based on "narrative investing"—predicting what other investors will believe next—rather than current fundamentals. This is causing significant volatility in companies like Salesforce or Capital One, which are being sold off not because their businesses are failing, but because the market consensus assumes AI might disrupt them in the future.

• The "Human Element" as a Premium Contrary to the technocrat view that human interaction is just "friction," the hosts argue that trust and accountability are non-transferable assets. In high-stakes transactions (real estate, law, wealth management), humans prefer dealing with other humans because they require empathy and shared accountability, suggesting the "relationship economy" will survive AI.

• Market Rotation over Market Crash While headlines focus on the correction of the "Magnificent 7" tech stocks, the broader market is actually performing well. Data shows that over 66% of index constituents are outperforming the S&P 500 itself. This indicates a "stealth correction" where capital rotates from overvalued tech into industrials and staples, keeping the overall market stable without a crash.

• The Tech Sector's Economic vs. Market Weight There is a massive disconnect between tech's influence on the stock market and its influence on the real economy. Tech giants dominate the S&P 500 but account for only ~2.3% of total US payrolls. This explains why tech layoffs or a "tech recession" rarely trigger a broader economic collapse—the sector is highly profitable specifically because it doesn't employ that many people relative to its revenue.

• Revealed Preference (Sentiment vs. Spending) A recurring economic theme is the gap between what consumers say and what they do. Survey data suggests consumers are despondent about the economy ("vibecession"), yet transaction data from major banks shows spending remains resilient. Economic analysis based on "revealed preference" (behavior) has proven more accurate than analysis based on sentiment.

Quotes

• At 0:06:23 - "We had overestimated the value of human relationships. Turns out that a lot of what people called relationships was simply friction with a friendly face." - Capturing the core fear that AI will reveal human connection in business as merely an inefficiency.
• At 0:07:05 - "Realtors still exist because people like working with humans to make these transactions possible. You don't need a human to buy a house right now... and we still require humans." - Arguing that human intermediation offers value (trust/accountability) beyond simple information access.
• At 0:10:25 - "Investors are trying to think about what other investors are going to do next... They think, 'Listen, everyone thinks software is going to be disrupted... and let's sell those.'" - Explaining how second-level thinking drives market sell-offs based on crowd psychology rather than business fundamentals.
• At 0:17:34 - "There’s going to be a million more lawsuits. There’s going to be a million more people that you can do taxes for... If you can use an AI chatbot for customer service, think about how many more complaints there are going to be." - Illustrating the Jevons paradox: as AI lowers the cost of services, demand for those services often explodes, requiring more oversight.
• At 0:21:28 - "Do you want a Capex bubble or a bunch of job loss? Which one do you want? No one wants either of those things... The tech people have done a horrible job of telling people why they should want this technology." - Highlighting the failure of tech leadership to communicate a human-centric benefit for AI.
• At 0:26:55 - "At 66.4%, the greatest number of index constituents are outperforming the S&P 500 index itself over the last 50 years." - Citing data that proves the market rally is broadening out beyond just a few tech stocks.
• At 0:43:52 - "Netflix, the biggest winner of one of the biggest categories of the decade, has underperformed the equal weight S&P over the last 5 years. Why would you ever buy another individual stock ever again?" - Emphasizing that picking the correct business winner does not guarantee beating the market due to valuation compression.
• At 0:46:44 - "It is worth keeping in mind that tech employment accounts for only 2.3% of overall payrolls... As big as tech is in the stock market, as far as the economy goes in the labor market, it's still a tiny, tiny piece." - Explaining why tech sector volatility doesn't necessarily drag down the wider economy.
• At 0:48:29 - "Watch what people do more than what they say, and you'll learn a lot more." - A maxim for navigating the current economy where consumer sentiment surveys contradict actual spending data.
• At 0:51:12 - "The reason this is so scary is because it's coming for white-collar workers. For blue-collar workers, that took place over 30 or 40 years... this is happening in like 3 years." - Identifying velocity as the primary anxiety driver in the AI revolution compared to the Industrial Revolution.
• At 0:52:00 - "Netflix burned $11 billion... Tesla... burned $9 billion... OpenAI is telling investors that through 2030, they're planning on burning $218 billion." - Contextualizing the unprecedented capital requirements and cash burn rates of the current AI boom.
• At 0:54:08 - "The bifurcation we're seeing in the housing market... it's always been kind of a local market... Now it's totally changing and the location matters more than anything." - Noting the shift from a synchronized national housing market to one where local inventory levels (e.g., Florida vs. NY) are completely decoupled.

Takeaways

• Ignore "Narrative" Sell-offs: When the market punishes profitable companies (like Salesforce) based on hypothetical future disruption scenarios, view this as an overreaction and potential buying opportunity rather than a signal of broken fundamentals.
• Invest in "Physical" Hedges: As the digital world becomes saturated with low-cost AI content, physical assets (real estate, commodities) and trades (plumbing, construction) that cannot be digitized may see increased value retention.
• Focus on Behavior Over Sentiment: When analyzing the economy or making investment decisions, disregard consumer sentiment surveys ("vibes") and focus exclusively on spending data ("behavior"). People are complaining but still spending.
• Avoid Individual Stock Picking: The Netflix example proves that even correctly identifying a generational winner doesn't guarantee market-beating returns. Stick to diversified indices to capture the rotation of capital rather than trying to time specific winners.
• Differentiate Between "Tech Recession" and "Real Recession": Do not panic if you see headlines about tech layoffs. Because the tech sector employs so few people relative to its market cap, these layoffs are unlikely to trigger a systemic economic collapse.
• Monitor Local Housing Data Only: Stop looking at national housing averages. The market has fractured, so buying or selling decisions must be based strictly on hyper-local inventory and price trends in your specific zip code.
• Be Wary of Liquidity in Private Credit: Understand that "private credit" funds often have an asset-liability mismatch. Do not treat these investments as liquid savings; recognize that redemption terms can change instantly during periods of stress.