All Episodes
Jan. 29, 2025 - RadixJournal - Richard Spencer
25:08
The AI Bubble Pops?

This is a free preview of a paid episode. To hear more, visit radixjournal.substack.comSummary generated by AI robot Economic Bubble TheoryThe discussion begins with observations about gym attendance patterns after New Year's, noting how it peaks in the first week, gradually decreases over subsequent weeks, and eventually drops below normal levels by the fourth week. This pattern is compared to economic bubble fo…

| Copy link to current segment

Time Text
So what is remarkable about DeepSeek are two things.
It's open source.
So the code for this AI and large language model and reasoning models, is what they said, are there to be inspected and looked at.
There's also some indications that it...
It's basically forking OpenAI back when OpenAI was in fact open.
It's no longer open.
It's a closed-source, for-profit company.
It started out as a...
I guess a charity, a 501c3 or something like this.
And it's had massive investment from Microsoft primarily.
I think Elon Musk was an early investor, and now he's at war with Sam Altman, etc.
Another thing that's remarkable about it is that it's Chinese.
So you ask yourself, is this political in some way?
Is this a kind of sabotage?
And in this very Chinese way, there's this shallow mimicry of Silicon Valley ideology.
So the company describes itself as we're moving towards AGI and long-termism is possible through curiosity.
It's almost like they cut up a bunch of buzzwords, put them into a bag, shook it and spilled it out on the table.
And they came up with long-termism, AGI and curiosity.
So it's a...
What is happening here?
And I've seen a number of people react to this, and they say, ah, you know, this is the Sputnik moment for AGI.
So this is like the Ruskies launching a satellite into space.
Sputnik. They've launched a dog into space, no less.
And we've got to get back to basics.
We've got to teach young people science.
We have to make long-term plans, a moonshot, if you will, a going to the moon as a goal for the decade of the 1960s.
We've got to get our act together because they are ahead of us.
I've also heard the other side of this coin, which is that...
They stole OpenAI.
There's actually a moment with DeepSeek where if you say, like, who are you as a program, it will say, I'm ChatGPT 2.3 or something like this.
So there is a high likelihood, maybe certainty, that they were using some of that initial code that they then developed themselves.
But I think it's something different.
What I would relate it to is the quartz crisis of the 1970s.
Now, what is the quartz crisis?
I'm talking about watches here.
Why am I talking about watches?
It's one of the most famous monumental examples of disruption that has ever occurred in economic history.
So, beginning in the 1950s, it was discovered that a quartz crystal could vibrate at something like 32,000
times a second, or some unfathomable number.
And it would do it with such a regularity that you could do many things with it, including keep time.
And could you, with the use of a battery, send an electrical signal through a quartz crystal and keep accurate time, and you would have that ticking of the quartz watch that we're so used to, as opposed to the mechanical sweep of a watch that is wound.
And is using other sort of mechanisms.
And it was 1969, I believe, Seiko introduced a quartz watch with a battery.
I'm forgetting the name of it at the moment.
We could go find it if we want to.
There was other attempts at this.
The Accutron, I believe, was a famous one from Bulova.
And the one that is...
Maybe most iconic, at least for me, is Hamilton's Pulsar.
So if anyone's seen the James Bond movie Live and Let Die, Roger Moore, in the opening, the pre-title sequence, he actually looks at his watch and then he presses a button on his watch and a digital readout of the time is revealed.
And it's sort of...
Clunky when you see that now.
And of course, there's like an Italian secret agent in his bed and he's checking the time.
You know, it reminds us of a decade earlier where James Bond, played by Sean Connery in Goldfinger.
Comes out of the water.
There's a swan on his head, and he's wearing a wetsuit, or I guess a dry suit.
And he opens it up, and he's wearing this dinner jacket, tuxedo, basically.
Totally awesome.
And before the explosives go off that he's planted, he checks his time, and what is he wearing?
He's wearing a Rolex Submariner watch.
Now, today, the Rolex Submariner is, in effect, a highly expensive luxury.
Time piece.
In 1964, for Goldfinger, Goldfinger was 1964, yeah.
The vibe of it was different.
The idea of wearing a Rolex Submariner with a dinner jacket was outrageous in a way.
It would be like wearing a tuxedo with maybe a big G-Shock or dive computer or a knife belt.
You know, on your tuxedo.
The whole point of that scene was the incongruity.
James Bond is a cultured thug.
He's a blunt instrument in a tuxedo.
He's a total badass with this sport watch, but he's also a gentleman spy.
And that's now lost in the sense that, you know, your broker, uh, who lives in wall street is wearing a submariner and it's, it's no longer really a sports watch.
It's a, it's a time piece, although still cool.
Um,
That was also what happened with quartz watches at the beginning.
So when James Bond, played by Roger Moore, looks at his Hamilton Pulsar, and he has to press a button to see the time, and it's a digital, red digital display.
That was super cool.
In fact.
And I believe President Ford wore that Hamilton Pulsar quartz watch, and it was highly expensive and kind of incredible.
It was like the Apple Watch, but maybe even more radical or innovative, because the idea of wearing something that's computerized, the battery-powered on your wrist, it's a totally new thing no one even thought about.
Well, very shortly after this high-end quartz watch came onto the scene, quartz became democratized to a point that it blew away the market for wristwatches in Switzerland.
People started making watches in Switzerland because it was cheaper, in fact, many, many centuries ago, and because farmers had nothing to do over the winter and they could make clocks and movements, etc.
But certainly by the 20th century, Swiss watchmaking had become what it more or less is today, high-quality, fashionable, artisan craftsmanship.
The equivalent of buying a German sports car, Porsche or BMW or maybe an Italian sports car, an Italian suit.
That was the vibe that the Swiss had acquired in watchmaking by that time.
Well, that's all fine and good, but when you democratize the court's watch...
It starts to go low-end in a radical way that undercoats cuts everything.
Why would you pay $250 in that time for a Rolex Submariner when you could pay $25 for some new quartz watch coming from Japan in Seiko?
And it was just a radical undercutting of the entire industry.
I've read, because I was reading up on this last night, that there were actually 1,600 Swiss watch companies in 1969, and by 1989, 1,000 of them had gone bankrupt,
disappeared, and were no more.
So the kind of devastation to the industry just can't even be put into words.
I don't know if we've seen anything like that.
In other industries, maybe someone could come up with an example.
So what did the Swiss watch market do in the face of democratized watches from Japan?
And also, not only was it much cheaper, but it was actually much better, at least from a certain point of view.
So a Swiss watch that's well-made might be off two seconds a day.
Forward and backward.
It might be off five, ten seconds a day.
Now, five or ten seconds a day, who cares?
I mean, it's still keeping very good time, and you could always reset it once a month.
You're totally fine.
It's not like it's a terrible instrument or anything like that.
The quartz watch, it's like one second a year.
The watch that you buy...
The watch that some rich guy, the Patek Philippe that a rich guy buys for $100,000.
It's not even close.
That Walmart product is, on one objective level, infinitely better.
So, how did...
The Swiss handled this problem a couple of ways.
During the 70s, a lot of these other companies were making quartz watches.
Rolex made some quartz watches and things like that.
They were trying to get on the trend.
But they soon realized that that was a bad idea.
I don't know when they stopped, but certainly by the mid-80s, Rolex would never make a non-mechanical watch.
At all.
And they started promoting the idea of like the sweep of the hand and things like that, as opposed to the tick of the court's watch.
This is better, more elegant or something.
And so there was a huge consolidation of these companies.
In what became known as the Swatch Group, there's an interesting man named Nicholas Hayek, who's actually really a brilliant man.
He's a scientist and engineer and also a businessman and watch aficionado from Switzerland.
He's a fascinating guy.
And so he combined all these companies where they were, you know...
Achieving economies of scale.
They wouldn't all go out of business.
They would do mutual marketing, share movements, etc.
Basically, consolidation is far more efficient than competition with 1,600 different watchmakers.
They both embraced Quartz and then they leaned well away from it.
So they created the Swatch.
So Swatch is the...
It's not Swiss watch.
It's second watch.
So we're going to sell you a watch.
And I don't quite remember how much these sold for in the 80s, but let's just say 30 bucks or 20 bucks or something like that.
It was very affordable.
You could buy 10 of them.
And they were cool.
They were fashionable, very 80s.
I might even...
I'm sometimes tempted to go buy a super 1980s swatch from eBay or whatever that just looks like a Duran Duran album or something.
They're fun and cool, and they still exist today.
So they embraced courts and they embraced cheap, high profit margin or maybe low profit margin, but definitely cheap, high volume, I should say watches.
They also leaned into the luxury.
Rolex was making cool sports tool watches at one point.
They started to make a watch that was a luxury item.
What is the Patek Philippe line?
You don't buy a Patek Philippe.
You pass it on to your grandchildren.
It was something like that.
You buy it for generations.
They weren't saying that previously.
They now sort of had to say it, and they went up market.
So Quartz started up market at the very beginning, but quickly went way down market.
And that is the idea of...
Classic disruption theory of a down-market solution that is good enough, or weirdly, in Quartz's case, better than the mid- or high-market solution, and it just upends the industry.
Quartz's crisis definitely was that.
So Rolex, Omega, Patek Philippe, Audemars Piguet, etc., etc., they did new designs, but they leaned into the mechanical watch.
To wear a quartz watch is sort of cringe or declassé.
They leaned into the snobbery of, I inherited this Patek Philippe from my father, or I am successful enough to buy a Rolex.
Or a Speedmaster, the watch that went to the moon, quote-unquote.
That kind of stuff that they have basically been doing for decades and decades.
They've never stopped it, and I don't think they will stop it, because that's sort of all they've got.
But it has been remarkable.
So why have I been talking for 20 minutes about Swiss watches?
Well, I'm sort of fascinated by the whole thing, first off, obviously.
But... There's something else to it.
So I think what is dramatic about Deep Seek is that it's basically the court's watch of AI.
And in this hilarious, you could say, way, it's proving how AI is not all that it's cracked up to be.
so maybe they did fork open AI
OpenAI from a couple of years ago.
Maybe they're copying from other companies and other companies are copying from other companies, etc.
in some big circle.
Regardless, on a fraction of the investment in training, they have basically produced something that is good enough and I've even seen some evidence out there that it's in fact better.
And so you don't, like, open AI, the way I view it, it's almost like the Swiss watch market without any of the romance.
So what I mean by that is that it's not open AI, it's a closed system that has received billions of investment with the assumption that it's going to be highly profitable from groups like Microsoft, etc.
But why would you pay for this service?
If you can get something much simpler and easier from the Chinese knockoff company, the Seiko of our time.
The Swiss watch market was able to survive because they leaned into the romance.
There's no romance to Sam Altman.
There are a couple of things that he's playing on recently.
There's the...
One day-ism of one day in the future, we're going to have AGI and it's going to think for us.
I saw Marc Andreessen was saying how, you know, we worry about replacing labor with AI, but we might actually replace the C-suite with AI.
I don't know what he's playing there.
And there's the little tech Silicon Valley patriotism that has been promoted by these people.
How we need to dominate the world in AI.
We can't let the Chinese do it.
And look, we have this $500 billion investment.
It's going to cure cancer one day, maybe once we get there.
but keep the money flowing in because we need these massive, massive server farms to train this data and to build it up.
I don't think an LLM is ever going to merge into AGI.
That is something that has a thanks for itself and in a way has a will of its own.
That's just actively solving problems, reproducing itself, maybe destroying the world.
I have never bought into AGI doomerism, but I also don't buy into AGI utopism as well.
I use AI on a, if not daily, weekly basis for sort of things, but I'm really not sure it's much of anything than if-then statements on a search engine.
It's a kind of development of Google giving you Don't you think that,
to some degree, it might be cheaper for them to do what they're doing because they don't have to train it on so many, like...
On, like, all these racial grievance stuff and all this, like, feminism stuff.
That may be.
But, I mean, this is the other problem with these companies like Gemini with Google, and I assume Llama has the same thing, and also OpenAI, is that, you know, with, say, the Swiss watch companies,
people loved these companies.
With AI, people sort of hate them.
Google came out of the gate with this image generator that was making George Washington black and gay and female.
And that pissed off the conservatives, but I think it sort of pissed off everyone and created a huge credibility crisis.
I don't think...
DeepSeek is better able to do that because there's not the political correctness overhang.
But maybe that had an effect.
But I think the bigger issue is that it's not like the political notion that we can dominate the world in AI and that we can prevent China from catching up because you need all of this massive investment in infrastructure.
I just think that's been revealed to be fake.
language models aren't that great.
At some point, they're going to produce the cheap Seiko that is good enough or weirdly better than the stuff that they have dedicated hundreds of billions of dollars towards.
Things.
And AGI is never happening.
And... Selling people on the notion that Hal will one day save us all is nonsense.
The overwhelming truth is that they have produced an LLM that is just as good as Claude, Gemini, Llama.
OpenAI, ChatGPT, etc., etc., etc.
And that this notion that they're years behind, or we could prevent them from catching up, or that there's something altogether special about these LLMs, I think has just been debunked.
um um
It's also of interest is the degree to which Little Tech, David Sachs, who's the AI and crypto czar, and Andreessen and all these people,
they covered AI in this veil of populism or nationalism or conservatism.
And it's like, we've got to win this war.
And it looks like they've lost.
And I'm sure Trump is exceedingly furious at them because he imagined that last week's announcement of, you know, we're going to cure cancer one day was this huge win for him, this way of appealing to a base beyond MAGA.
I mean, MAGA probably hates the idea of mRNA vaccines created through AI.
They're like the least prone to liking those kinds of things.
He could reach out.
He could get a win.
He loves the stock market.
And I feel like unless OpenAI can advance beyond what they're doing right now, they've sort of already lost.
Because AI, I shouldn't say AI, LLMs are now commodified.
Period. Like a quartz watch is kind of commodified.
I mean, let's just say, I mean...
With a smartphone, you don't even need a watch.
But let's say you're on vacation and you forgot to pack your watch.
You just go to some store and just like, yeah, what do you got?
Oh, that one.
Oh, that's the cheapest.
Yeah, this one's $5 more, but I kind of like the color.
I'll just buy that.
It's just a pure commodity.
It's bacon in a way.
It doesn't matter what brand of bacon.
I mean, maybe it matters to some degree, but you get the point.
It's eggs, it's bacon, it's toilet paper.
It's just a commodity that can easily be reproduced.
And it's not something special.
What you add to the AI could be special in your niche market.
But the LLM thing, it's been done.
We have seen...
Export Selection