Why, yes, Professor Mazzucato *is* wrong, why do you ask?

Schumpeterian profits for the win here:

A breakthrough Chinese chatbot has sparked alarm about the country’s advances in artificial intelligence (AI) and wiped close to $1 trillion off global stock markets.

A heavily-censored Chinese chatbot called DeepSeek shot to the top of Western app download charts on Monday in what was described as a “Sputnik moment” for AI.

American technology stocks tumbled in response, driven by fears that heavy-spending on AI by Silicon Valley companies that has been championed by Donald Trump will fail to yield profits for investors.

California’s Nvidia, the semiconductor giant that has become the world’s most valuable company on the back of the AI boom, at one point slumped by more than $600 billion in the biggest one-day loss of value for a single company in history.

Contrary to those claims that it is the State which drives technological advance - and therefore the State which should collect the profits of it - it is competitive markets that drive the process.

Further, capitalist - or even State - profit is not a major outcome of the process. It’s far more worthwhile to think of profit as an intermediate stage, a part of the process not an end result.

This has all been explained by an actual economist of course. Bill Nordhaus and Schumpeterian Profits in the American Economy.

Coming up with a new technology is indeed difficult. Doing so produces vast amounts of value - well, assuming that the new tech does something that anyone wants done it does. The thing is it’s not the capitalists, it’s not the entrepreneurs, who gain that value. Nobbut a tiny fraction of it at least - Nordhaus tells us perhaps 3%. The rest of it turns up as the consumer surplus. That value that we as consumers gain from the new thing but do not, in fact, have to pay for.

Here is our example of this. Artificial Intelligence, perhaps it really will entirely upend the global economy. We’ll have machines - yet more machines that is - to do ever more of the grunt work for us. We can then hunt in the morning, fish in the afternoon, rear cattle in the evening, criticise after dinner, just as we wish.

There’s that intermediate stage where the hopeful think that those providing the limited inputs will make vast fortunes in profit. Then in comes some competitor showing that, you know and ackshully, this can be done simpler and cheaper. We don’t gain any less of the value of the new technology - here the AI - we just have to pay less for it. Those capitalist profits decline, as shown by the plunge in the capital value of that future stream of profits that will now not be happening; the added value accrues to us, us consumers out here. Then the whole process goes around another iteration and then again and this is why we now have t-shirts for £1, grocery bills are under 10% of weekly income and the supercomputer we each of us have in our pockets is as cheap as chips.

We’ve been doing this for just over a quarter of a millennium now and it’s the explanation for why, by those historical or even global standards, we’re all as rich as Croesus.

Free markets for the win.

Again.

Tim Worstall

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