AI and Eggflation

Good morning,

So, my take last week about Oregon State beating the University of Washington did not go as planned. But at least today (Friday, November 24th) we’ll get to see the Beavs thrash the Ducks in the last true Civil War in the imploding PAC-12’s history.

This should age well too.

The November 26th Weekly Three:

• The sixth time is not the charm, as the Pentagon has failed its sixth straight audit…

• The Times of Israel reports on some data that indicates support for Netanyahu’s coalition party is collapsing in Israel.

• New York City Mayor Eric Adams was accused of sexual assault.

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Super AI

In Marvel’s 2015 film Avenger’s: Age of Ultron, the Ultron AI needed all of five minutes on the internet to decide the entirety of humanity needed to be wiped off the map. Ultron was a supremely advanced AI model, and of course, fictional. But if recent events are any indication, we are not all that far away from a real-life version of a highly intelligent AI system.

OpenAI, the company responsible for the ChatGPT models, saw the tech-bro equivalent of a Succession episode play out this week in Silicon Valley. In a surprise move, OpenAI founder and CEO Sam Altman was ousted from the company. But over the course of a 73ish hour period, involving secret board deals and meddling from Microsoft, Altman was ultimately reinstated as CEO along with a few new board members.

While this kind of corporate cannibalism and infighting is not new to the tech industry (or corporate America in general) the reasons for the sudden ouster of Altman are beginning to trickle out, and they are fascinating.

As first reported by Reuters, in the days leading up to Altman’s ouster “several staff researchers wrote a letter to the board of directors warning of a powerful artificial intelligence discovery that they said could threaten humanity”. While this letter was not the sole reason Altman may have been ousted, its by far the most interesting.

Its all about an OpenAI project called Q* (Q-star), a “next-gen” AI model that may hold the promise of what’s called artificial general intelligence, or AGI. AGI is presently a theoretical idea. On paper, AGI is a model that meets and/or even exceeds our human intelligence.

Current AI models, while quickly evolving and fast integrating into our daily lives, are rudimentary. They have clear limitations on the problems they can solve, and still require quite a bit of human intervention and guidance to produce results.

What makes AGI both promising (and terrifying) is that it would technically have the capacity to perform and solve a plethora of functions and problems humans have long toiled over.

The Reuters story included this line: “Though only performing math on the level of grade-school students, acing such tests made researchers very optimistic about Q*’s future success, the source said.” So right now, it’s only solving more basic problems. However if its early success sparked enough outcry and worry for a letter to be written to the board, then this model is likely learning and advancing at a rate far quicker than anything previously developed.

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I find the idea of a hyper intelligent AI model equal parts morbid and hopeful. By nature as a model that exponentially grows on its own knowledge base, AI was always going to advance far sooner than we were prepared for it.

The morbid part of AGI comes from thinking about the negative ramifications of a model that can easily surpass human economic production in many of our industries. AGI has the potential to make many jobs in our society obsolete. How would our societies evolve should industry very suddenly no longer have a need for a large workforce?

On the flip side, if a hyper intelligent AI can successfully fill the role of a human in many of our industry functions, then perhaps that extra time on our hands will lead to a more equal society, where the resulting wealth created by AI solves our most pressing problems, and leads to an improved quality of life for everyone. Probably not, but the potential is certainly there.

Whatever the outcome, and whether we like it or not, AI is here, and the next major step in AI competency will arrive much sooner than we expect and are equipped to handle.

Eggflation

The dramatic rise in inflation since 2020 has wrought havoc on the daily lives of citizens in every country across the globe. The price of basic necessities, such as energy and food, has left people reeling in the checkout line. While there are signs inflation is cooling a bit, that does not change the simple fact that the cost of living has dramatically risen over the last few years.

The Federal Reserve has attacked this issue by raising interest rates, meaning the long term cost of borrowing money has gone up. The goal of this endeavor is to squeeze businesses and slow down the pace money is changing hands. The byproduct of this approach is sadly increased unemployment and stagnant wages. Meaning the average Joe, already in dire straits due to the increased cost of living, is taking the brunt of this strategy.

Meanwhile, hoping no one is paying attention, are the leaders of the corporate world who since 2020 have seen record levels of profits across most major industries.

That’s right, as inflation has risen over the last three years, so has the bank accounts of many of the companies whose products people are struggling to afford at the checkout line.

Me thinks these two just might be related. Lets take a look at the list of record profits shall we?

• The oil and gas industry: $200 Billion in profits in 2022. Double 2021.

• Tyson Foods, the largest meat company in the US more than doubled its profits between the first quarter of 2021 and the first quarter of 2022.

• General Mills, who owns many cereal and cooking brands we use each week, saw its profits up 97 percent compared to the previous quarter in 2022.

This list goes on, and on, and on.

The economic term to describe this phenomena is a “profit-price spiral” which means corporations, in anticipation of inflationary driven labor and business expenses, proactively raise the cost of their products. But if companies continuously raise prices like this, it can have a spiral effect on inflation. Meaning the constant raising of prices by corporations in fact causes even more inflation.

While these companies hope consumers focus their blame on the White House, the cynic in me believes these large corporations are just hiding behind the rise in inflation as a reason for increased prices while they rake in billions of dollars in profit with little consequence.

One of the reasons they don’t face consequence is because industries like food manufacturing essentially operate as monopolies or oligopolies.

Take a look at the image below. It shows the interconnected web of various food brands we consume. At the center of this web are about eight or nine corporations, who basically own everything.

When a small number of companies are able to keep growing and acquiring all the competition with no repercussions, it allows them to price goods higher as there is less business to compete with.

But it doesn’t stop there. These industries employ a whole suite of unethical practices to artificially keep prices high and maximize profit.

For example, on Tuesday last week a jury found America's largest egg producers and industry groups illegally rigged the market to drive up the price of eggs. While this investigation was focused on a price fixing scheme in place between 2004 and 2008, I don’t think its inappropriate at all to speculate that this type of scheme is common everywhere.

I’ll end with more evidence: According to a report from the Kansas City Fed, close to 60% of inflation in 2021 alone was due to corporate profits.