Welcome to The Nonlinear Library, where we use Text-to-Speech software to convert the best writing from the Rationalist and EA communities into audio. This is: On AI and Interest Rates, published by Zvi on January 17, 2023 on LessWrong.
Note, To say it up front: None of this, or anything ever on this blog, is investment advice.
This post on the EA form, highlighted by Tyler Cowen, points out that
Transformative aligned AI would increase real interest rates. A lot.
Transformative unaligned AI would increase real interest rates. A lot.
Markets continue to have low interest rates not pricing this in.
Therefore, either (A) AI not only isn’t about to end the world it also is not about to do anything economically that powerful or (B) the Efficient Market Hypothesis (EMH) is false.
In conclusion:
There is no one in the market to price this in. Beyond avoiding wrong-way investments and locking in low-interest loans, the few who buy the hypothesis have better trades to make than betting on future interest rates.
Nor is the market meaningfully considering and then rejecting the hypothesis.
The pre-Covid-pandemic market did not peak until February 20, 2020.
Thank you for coming to my TED Talk.
Treasure Everywhere
The OP claims that option B implies there is treasure everywhere.
No. A lot of comments attempt to explain.
Even the OP’s proposed trade would, under favorable assumptions, only return about 10%. That’s at best a highly mediocre trade, in its full context.
At a minimum, again assuming you buy the hypothesis, buying a portfolio of companies that would profit from transformative AI is a superior play. So is shorting a portfolio of assets that would not profit from this scenario but do depend on low interest rates to justify their valuations, if you want that level of risk. If you’re so sure interest rates will go up, why settle for ~10% returns when there are Bitcoins (and many other assets including stocks) you can short?
Don’t forget to consider the marginal utility of capital in various scenarios.
Many traders at Jane Street Capital are aware of the potential of AI, or at least have considered strong arguments for it. On the time horizon of almost all their trades, this makes almost zero difference.
If We Will All Go Together When We Go
Eliezer Yudkowsky points out that taking advantage of knowing that the world will be ending is difficult. How do you collect? If you did collect, how would you spend it?
He then goes into more detail in this comment and then this second attempt, too long to quote here in full, but recommended if you remain confused or unconvinced here.
That does not mean none of your financial choices change in such a world.
While there are not amazing winning moves, there are plenty of losing moves you can avoid if you are sufficiently confident in doom. For example:
You can spend down capital and other resources.
You don’t have to save for retirement.
You can avoid making long term or illiquid investments.
You can borrow money rather than loaning out money, especially locking in low long term interest rates. This is more like a win. You still can’t that win big this way, even if you’re fully confident you never have to pay it back, because there is a limit to how much money you can borrow over a 10-year horizon.
You can also alter other life choices, including whether to have children. Unless your certainty level is far higher than I believe is justified, I think this is almost always a mistake. Children and ordinary life well lived are great joys, keep you sane and grounded, give you something to protect, improve how you are treated. Often they teach you something. The more extremely you modify your choices, the more you really will be doomed even in relatively ‘normal’ futures, and dread of this will impact your experience and life now.
Yes, there are perhaps exceptions to this where your focus really is that important, but if you are not mentioned in this post by name you probably don’t count for that.
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